When discussing AI, the vast majority of people are still entangled in the question of &#34;Will jobs be taken away?&#34; However, Deutsche Bank believes this perspective may be a bit narrow.
According to the Wind Trading Desk, the latest report written by George Saravelos, Global Head of Foreign Exchange Research at Deutsche Bank, outlines two extreme outcomes of AI development:
The first outcome is &#34;complete replacement.&#34; Similar to Marx's predictions over 180 years ago and Elon Musk's vision today: in the factors of production in economics, &#34;capital&#34; itself becomes &#34;labor,&#34; labor value approaches zero, and capitalism becomes outdated. AI massively replaces human jobs, wealth and income become highly concentrated in the hands of a few capital owners, and the income and demand of ordinary people are weakened, leading the economy into a dilemma of &#34;many goods, but no one can afford them.&#34;
<blockquote>
Did Marx predict artificial intelligence? About 200 years ago, he wrote a work on &#34;machines,&#34; envisioning a scenario of full automation. In this world, the problem of scarcity is resolved. However, as the value of labor drops to zero, capitalism will become outdated, and we will transition to a new world of material abundance. The endpoint envisioned by Marx is surprisingly similar to Elon Musk's vision today.
</blockquote>
The second outcome is &#34;history repeating itself.&#34; AI, like past technological revolutions, improves efficiency but does not completely replace human labor; it merely &#34;empowers&#34; humans, with new jobs continuously emerging and policy systems still able to mitigate shocks. In this scenario, the logic of economic operation is similar to the past few decades, with inflation, interest rates, and stock markets more likely to rise moderately.
Will we plunge into the abyss, reach a paradise, or merely experience a normal industrial upgrade? This report from Deutsche Bank provides us with a fresh perspective.
<h2>When &#34;capital becomes labor,&#34; why traditional economics may fail</h2>
To understand the ultimate destructive power of AI on the economy, we must return to the starting point of modern economics.
Since Adam Smith, all classical economists have based their theories on one fundamental assumption: capital and labor are two completely independent factors of production. Whether capital or labor, their prices (interest rates and wages) are determined by their &#34;relative scarcity&#34; in the market.
Looking back over the past two hundred years, all previous waves of technological innovation have generally conformed to this model.
For comparison, the invention of the steam engine eliminated coachmen but created train drivers; the internet destroyed traditional print media but created countless programmers and delivery workers. Throughout these historical cycles, labor has always had something to do. Machines are capital, while operating, maintaining, and designing machines are still labor. Capital is merely a &#34;supplement&#34; to labor.
However, fully automated robots with Artificial General Intelligence (AGI) completely break this classification.
&#34;In this case, capital becomes labor. It is no longer a supplement to labor but a substitute.&#34; George Saravelos pointed out incisively in the report.
When an AI machine can think, produce, and iterate independently, this machine is both capital and labor. The foundational structure of modern economics breaks down at this moment
The report bluntly states: “When capital equals labor, the value of work will drop to zero, and wages will also drop to zero. Economists call this an unacceptable equilibrium. Scientists refer to it as a singularity. Classical economic theory collapses. Consequently, capitalism as a system will also become outdated.”
<h2>When the Law of &#34;Supply Creates Demand&#34; Fails, Growth May Face &#34;Secular Stagnation&#34;</h2>
What kind of transformation will occur in the macroeconomic machinery once labor is massively replaced? Deutsche Bank introduces a deeper theoretical deduction.
In a purely &#34;AI replacing workers&#34; world, wages decline, but the abundance of material wealth increases unprecedentedly. Machines tirelessly produce vast amounts of goods and services for the market.
According to classical economists like Say, Walras, and Wicksell, “supply automatically creates its own demand.” In their theoretical models, markets possess self-correcting abilities. Commodity prices will fall as production costs decrease, allowing workers to buy more with less money or find jobs in new fields.
However, Deutsche Bank warns that in a fully automated AI world, this self-correcting mechanism will completely fail.
The logic is straightforward: automation will concentrate wealth and income extremely within a narrow class of &#34;capital owners.&#34; According to economic laws, the &#34;marginal propensity to consume&#34; of the rich (capital owners) is far lower than that of ordinary workers.
For example: An AI factory can produce 10,000 cars a day at a very low cost. But all of this profit goes to the AI owner. This owner cannot buy 10,000 cars alone; meanwhile, a large number of ordinary people who have lost their jobs and have zero income will be unable to purchase even the cheapest cars.
“The transmission chain from supply to demand has broken.” Saravelos wrote.
This state of complete market clearing will manifest as: structurally very low labor income, deflationary price levels, and massive &#34;excess savings&#34; replacing strong demand for goods. Deutsche Bank points out that this is precisely the &#34;secular stagnation&#34; phenomenon proposed by economists Eggertsson and Mehrotra, which, in extreme cases, could trigger a Marxist-style revolution.
<h2>“Keynes Can Save the Day, But It May Not Be Enough,” It Depends on Government and Institutional Response Speed</h2>
In the face of market failure, can another major pillar of modern economics—Keynesianism—turn the tide?
Keynes's revolutionary insight was the acknowledgment of the failure of classical theory. Within the Keynesian framework, economic imbalances are not permanent but cyclical. When price adjustments are slow and retraining of labor lags behind, the government must intervene forcefully.
In the AI era, such intervention may manifest as: imposing high &#34;AI taxes&#34; on AI companies, creating a funding pool to distribute &#34;stimulus checks&#34; or universal basic income (UBI) to the entire population. Through this strong fiscal transfer payment, the economy can ultimately reach a new balance
However, this logic faces significant real-world constraints.
The report cites the extensive research on the history of technology deployment by renowned economists Daron Acemoglu and James A. Robinson. History shows that policy and institutional adjustments are often extremely slow.
For example, in the early stages of the Industrial Revolution in the UK, workers' real wages were suppressed for decades due to a lack of corresponding institutional protections.
To prevent a regression in living standards, Deutsche Bank has outlined a list of systemic reforms that must be undertaken: &#34;stronger labor negotiation institutions, competition policies that limit monopolies of dominant firms, tax and subsidy structures that do not artificially favor capital over labor, public investment in skills and creative tasks, and the expansion and reform of corporate governance.&#34;
If the pace of technological change outstrips the ability of governments and institutions to adapt, Keynesian remedies will not take effect in time.
<h2>From Marx to Musk: The End of Property Rights and Scarcity</h2>
Even with a highly proactive and responsive government, deeper political economy challenges still exist.
The report presents a philosophically significant phenomenon: the ideas about &#34;machines&#34; and full automation proposed by Karl Marx nearly 200 years ago are strikingly similar to the ultimate vision of AI held by today's tech giant Elon Musk.
In this fully automated endgame, humanity has solved the ultimate problem of scarcity.
However, this comes with the disintegration of social foundational consensus. &#34;In this fully automated scenario, the essence of capitalism collapses. Political issues no longer revolve around how to subsidize wages. They become more fundamental to social structure: if scarcity is resolved, what is the meaning of property rights?&#34;
As Keynes questioned in his famous 1930 article &#34;The Economic Possibilities for Our Grandchildren&#34;: when humanity no longer needs to work for survival, what is the meaning of human existence?
Although these topics may seem grand, Deutsche Bank emphasizes that given the existential nature of these questions, they are absolutely related to current financial market pricing.
<h2>Deutsche Bank's Two Endgame Scenarios and Pricing Logic</h2>
For the market, it is essential to consider both the &#34;transition period to the endgame&#34; and &#34;the endgame itself.&#34; Deutsche Bank divides the future world into two extreme parallel universes and provides a clear asset pricing logic.
Endgame One: AI Completely Replaces Labor (Towards Extreme Disruption)
This is a world where AI can quickly and (almost) completely replace human labor. From the perspective of living standards, this is a paradise where the economic problem of scarcity is permanently solved. However, Deutsche Bank warns that the road to get there will be &#34;the most destructive and filled with uncertainty.&#34;
<ul>
<li>
Macroeconomic Characteristics: Unemployment rates will continue to rise, the government will face ongoing intervention pressures, and social conflicts will intensify. There will be an endless game between capital owners and labor over resource allocation.
</li>
<li>
Market Pricing Logic: The macroeconomy will face strong deflationary pressures, and real interest rates will experience a structural and sustained decline. Due to the extremely high efficiency of AI, corporate profitability will soar
</li>
<li>
Stock Market and Foreign Exchange Market Performance: Despite soaring profits, the stock market will fall into a long-term state of confusion and volatility. The logic is that the &#34;risk of confiscation (such as extreme taxation or nationalization)&#34; faced by companies will significantly increase, and how profits are distributed among different stakeholders will always remain unresolved. In the foreign exchange market, Deutsche Bank clearly pointed out: &#34;Countries that can manage this smooth transition most successfully are most likely to see their currencies gain the most.&#34;
</li>
</ul>
Scenario Two: AI is merely an enabling technology (a historical repetition)
In this world, AI has not triggered a singularity, but rather, like various innovations in the 20th century, serves merely as a technology that enhances human capabilities (Augmentation technology).
<ul>
<li>
Macroeconomic Characteristics: This is a coherent world. The limitations of technology adoption, gradual institutional evolution, and Keynesian counter-cyclical fiscal policies will effectively play a role. Although distribution conflicts and the pains of the labor market still exist, humanity will always find new jobs.
</li>
<li>
Market Pricing Logic: In stark contrast to the first scenario, the macro indicators here will point upwards.
</li>
<li>
Stock Market and Foreign Exchange Market Performance: Inflation levels, real interest rates, and the stock market are more likely to trend higher. Deutsche Bank summarized: &#34;History will rhyme, not break, just like in the past few decades.&#34;
</li>
</ul>
<h2>What Should We Focus on Now?</h2>
Deutsche Bank pointed out that the purpose of this report is not to provide an absolute prediction, but to establish an analytical framework. In this extremely broad distribution of outcomes, the debate in the market regarding the macro impact of AI will absolutely not stop in the short term.
From an investor's perspective, how should we observe the progress of the AI economy's evolution? Deutsche Bank has distilled clear &#34;observation markers&#34;:
<ol>
<li>
Qualitative Changes in Labor Data: Are we beginning to observe an increase in structural unemployment rates? Has the already declining share of labor compensation entered a trajectory of accelerated downward plunge?
</li>
<li>
Shift in Fiscal and Antitrust Policies: How willing is the government to adopt proactive fiscal and institutional policies? Are they beginning to implement income redistribution vigorously? Have substantial antitrust preventive measures been taken against monopolistic capital conglomerates (tech giants)?
</li>
</ol>
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When AI achieves full automation, "capital" will be equivalent to "labor," and the value of labor will approach zero, leading to the collapse of traditional economic foundations. Deutsche Bank outlines two possible outcomes: if AI completely replaces humans, wealth will be highly concentrated, there will be many goods but no one can afford them, and the economy will trend towards deflation, low interest rates, high profits, but a volatile stock market; if AI is merely an empowering tool, employment and demand can still recover, and inflation, interest rates, and the stock market are more likely to rise moderately

- Deutsche Bank's report by George Saravelos outlines two extreme futures of AI development: total replacement of human labor or historical repetition where AI enhances human capability.  
- In the first scenario, capital effectively becomes labor, leading to a collapse of traditional economic structures and potential societal upheaval as wealth concentrates among capital owners.  
- The second scenario suggests gradual adaptation, allowing for structural employment changes and maintaining economic stability through new roles, thus preventing extreme inequalities and chaos.

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Not only will everyone be unemployed, but capitalism will also come to an end? Deutsche Bank's heavyweight simulation of two outcomes for AI development