Marx, Robotics and the Collapse of Profits

Yesterday I discussed how robots only do work that’s profitable, as any enterprise buying, programming and maintaining robots to do unprofitable work will soon be out of business.

What few observers seem to grasp is that automation goes through two distinct stages of profitability: when robots/automation first replace high-cost human workers, profits soar. Observers then draw projections based on the belief that these initial profits will continue essentially forever.

But this initial boost phase of profits gushing from automation is short-lived;as the tools of automation are themselves commoditized and become available to anyone on the planet with some capital and ambition, lower cost automated competitors come to market, destroying the pricing power of the first adopter.

Once an enterprise is competing only with other automated enterprises, profits fall to near-zero as lower cost competitors emerge. Competitive advantages are small once a field has been commoditized/globalized, and there is little pricing power left except for brands that establish some cache people will pay extra to have and hold.

But everything that’s been commoditized will no longer be profitable, as the competitive advantage of replacing human workers with robots vanishes once competitors have also replaced their human workers with robots.

Karl Marx described this dynamic of profits cratering and then vanishing in the 19th century. Marx described the consequences of over-investment in commoditized production and the resulting over-capacity: when anyone with access to investors or credit can buy the same machinery—that is, the machines are interchangeable commodities such as sewing machines, power looms, etc.–the capacity to produce rises as every competitor attempts to lower the unit cost of each product by producing more.

In other words, the only competitive advantage in an economy of commoditized machines and products is to increase production by over-investing in productive capacity. If competition has lowered the price of products, those who can double their production will achieve profitable economies of scale.

Over-investment and overcapacity are intrinsic dynamics of production; those who fail to invest heavily in increasing capacity will become unprofitable. Once their capital is destroyed, they vanish in insolvency.

As Marx explained, every enterprise is driven to pursue the same strategy, and the end result is massive over-investment and overcapacity. The flood of products overwhelms demand, and prices fall below the production costs.

Over-investment leads to overcapacity that devalues whatever is being produced.

This leads to a counter-intuitive result: over-investment destroys capital.

The naïve faith that robots will generate so much wealth that humans will have no work has it backward: over-investment in commoditized robots and their commoditized production will destroy capital, not create it.

Recall that enterprises don’t have profits, enterprises only have expenses. Robots will never be free, due to their intrinsic complexity and use of resources and energy. As robots and other tools of automation become commodities that anyone can buy, whatever robots can produce is devalued accordingly.

In other words, whatever commoditized robots can produce is no longer profitable; rather, the production destroys capital.

This leads to a startling conclusion: this destruction of capital must be subsidized by taxing whatever is still profitable, i.e. whatever cannot be commoditized or automated.

In other words, enterprises profiting from human labor that can’t be replaced by commoditized (interchangeable) robots will be subsidizing intrinsically unprofitable robotic production that destroys capital.

Exactly how will all these robots create unimaginable wealth when every moment they’re in production they’re destroying capital? It will fall to the remaining profitable enterprises and their human employees to subsidize the capital-destroying robots.

Robots can only perform profitable work, and in a fully commoditized production chain, very little production will be profitable. This raises a question: who will subsidize all the unprofitable robots? Who will buy them, program them, repair them and energize them? Who will subsidize all this capital-destroying work performed by robots?

The overcapacity intrinsic to automation destroys financial capital, globalized commoditization destroys social capital, and overconsumption destroys the planet’s natural capital.

The fantasy that robots will do all the work of stripmining the Earth to provide for our endless overconsumption, and generate vast profits doing so, is just another manifestation of an intrinsically destructive and unsustainable Mode of Production. 

The opportunity to get a 25% discount on my new book vanishes tomorrow morning.

This essay was drawn from my new book, Money and Work Unchained, which I’m offering to my readers at a 25% discount ($7.45 for the Kindle ebook and $15 for the print edition) through Saturday, December 9, after which the price goes up to retail ($9.95 and $20).

Read the first section for free in PDF format. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via

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  • Lucifer

    Chuck baby,
    Do you foresee a new macro regulatory mechanism whereby
    all assets identified by ones Social Security number or E.I.N.
    can be ‘bailed in’ or attached as collateral in securing further increases
    in the National Debt of the United States of America ?
    [ie;No such thing as Social Security
    No such thing as private property[for95%]
    No such thing as privacy
    Your ass is the toy of the best violent supremacists.
    gasp whimper and surrender your will as an individual
    with inalienable rights from Nature’s God.
    That was all ‘snowflake’ sensibility disinformation

  • Steven

    There are so many things wrong with this analysis it is easy even for someone who has given up reading economics as a waste of precious time. Smith should take a look at Galbraith’s The New Industrial State. In it he will discover that in this age of oligopolies and trans-national corporations there really is no such thing as competition – only managed prices, AKA price-fixing. Besides the activities of the Main Street economy only serve as the springboard for capital (‘wealth – sic!!) creation.

    This one is a real howler:The naïve faith that robots will generate so much wealth that humans will have no work has it backward: over-investment in commoditized robots and their commoditized production will destroy capital, not create it. Robots COULD generate all the real commoditized wealth – as opposed to the ‘capital’ parasitic finance capitalists just use to make more money – that real people actually need. But they won’t be allowed to because it would mean the real wealth they create would actually have to be shared with the people for whom the economy nominally operates instead of siphoned off by vicious ruling classes so they can contend with each other for control over what remains of the physical world.

    So it goes…

  • JerseyCynic

    “…The scene is Kentish Town, London, February 1858, sometime around 4am. Marx is a wanted man in Germany and is hard at work scribbling thought-experiments and notes-to-self. When they finally get to see what Marx is writing on this night, the left intellectuals of the 1960s will admit that it “challenges every serious interpretation of Marx yet conceived”. It is called “The Fragment on Machines”.

    In the “Fragment” Marx imagines an economy in which the main role of machines is to produce, and the main role of people is to supervise them. He was clear that, in such an economy, the main productive force would be information. The productive power of such machines as the automated cotton-spinning machine, the telegraph and the steam locomotive did not depend on the amount of labour it took to produce them but on the state of social knowledge. Organisation and knowledge, in other words, made a bigger contribution to productive power than the work of making and running the machines.

    Given what Marxism was to become – a theory of exploitation based on the theft of labour time – this is a revolutionary statement. It suggests that, once knowledge becomes a productive force in its own right, outweighing the actual labour spent creating a machine, the big question becomes not one of “wages versus profits” but who controls what Marx called the “power of knowledge”.

    In an economy where machines do most of the work, the nature of the knowledge locked inside the machines must, he writes, be “social”. In a final late-night thought experiment Marx imagined the end point of this trajectory: the creation of an “ideal machine”, which lasts forever and costs nothing. A machine that could be built for nothing would, he said, add no value at all to the production process and rapidly, over several accounting periods, reduce the price, profit and labour costs of everything else it touched.

    Once you understand that information is physical, and that software is a machine, and that storage, bandwidth and processing power are collapsing in price at exponential rates, the value of Marx’s thinking becomes clear. We are surrounded by machines that cost nothing and could, if we wanted them to, last forever.

    In these musings, not published until the mid-20th century, Marx imagined information coming to be stored and shared in something called a “general intellect” – which was the mind of everybody on Earth connected by social knowledge, in which every upgrade benefits everybody. In short, he had imagined something close to the information economy in which we live. And, he wrote, its existence would “blow capitalism sky high”……

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    • Jed Grover
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  • Sparticus

    Excellent Article.

    Robots are DOA.

    Corporations are not able to spend the “stupid” amounts of money that it would cost to fully automate and robotize entire industries. This is a pipe dream used to scare workers into not asking for a raise. Robots cannot think and are limited. Robots can only perform simple tasks. Robots Require expensive upkeep and maintenance.

    Robots, even if it were possible to displace humans, would only be affordable by PIG CORPS like Google or Amazon. So, there is no worry. Additionally, if Robots were to take too many Jobs the Whole Consumer Based Economy will Die and DOW JONES 25,000 will go to 5,000, taking every corporation with it. Robots are DOA and will never be allowed –even if it were possible– because the mass unemployment scenerio would prompt the government to outlaw them.

    Those who love Robots were abused as Children, and Cannot form Proper Relationships with Real Humans, so they go off in a Delusional World of Robots.

    • ICFubar

      Yes, unless the human population is dropped to coincide with the increase in robotic populations. An example of this is the current population of horses after the introduction of automobiles to what their numbers were before. If not for horse enthusiasts the horse population would be even much smaller.

      • Sparticus


        These Robot Perverts are Delusional. I just read an article on Zero Hedge about Amazon Drivers who cannot even take a pee-break and are forced to deliver packages over 11-hour shifts. People need labor unions. The Greedy Generation sold out Labor Unions ( for early retirement pension) and now Labor has Zero Representation. However, reading the above, I wondered where are the robots?

        Simply, those lying perverts can never get a robot to do all the complex tasks that these drivers do: delivery to the door, navigating the steps, driving, signatures, and gas/vehicle maintenance. Robots simply cannot multi-task and are Dead on Arrival. Not even Amazon can do it! Robots are Propaganda!

        People need to fight back by bring back REAL labor Unions.

        • ICFubar

          I agree mostly with your thoughts. The greed gen however were born at a time when personal debt levels were low and simply gained their wealth (houses they bought- asset) by riding a growing inflationary debt bubble (house-asset price increase) instigated by those that run the world economy. Where they are to blame is that they got fat and lazy and allowed labor leadership, the union bosses, to sell out and destroy unionized labor.

          You may find this interview of some interest as it comments on the greed gen.

          • Sparticus

            Thanks ….
            Yes, the economists are dead wrong. However, they have their own interests and are usually politicized. The Generation before Boomers and Boomer gen were bad. The Gen Coming out of WW-2, did not need “any”education to earn a middle class income and everyone got one. Homes were Cheap. Cars were Cheap. Nobody had SLSC/AES debt, nor could they even imagine the Horror.

            I get sick of people criticizing children for the evil their parents did. I feel sorry for the millennial and I know damn well their souls were sold. They need to revolt on wall street and take it all back.

          • Sparticus

            Good video ! I watched it and found it to be correct as It naturally flows with everything we see and know. The economy stinks and it is getting worse. You cannot fix a problem if you lie about the problem. Most economists are lied to in school and become politicized government agents. Most of the Damage comes from the Export of Industry to Slave Nations by Greedy Corporate-Government for Treasonous Profit. There is nothing left and college is a sure ticket into debt and homelessness: Wages Flat / Housing up 1,000-percent; the writing is on the wall.

          • ICFubar

            Aye, bankers in their greed have forever found new ways to self destruct, the only problem is that they take everyone else down with them. I feel sorry for the millenials as on a whole they never had a chance and will likely see their parents wealth siphoned off before they get a chance to inherit. Bankers need to be regulated to a point where they feel it in their bones but the likelihood of that is very slim as they run the show. Perhaps this is all a part of some ‘One World Order’ master plan or do they just make it up as they go?

          • Sparticus

            The Bankers Run Nothing, Only what People allow them to run. The People can crash the party on wall street ” any day of the week” and bankers/politicians will be jumping out of windows. This is easy. The people need to fight back or they will be consumed.

          • ICFubar

            While your statement is true in principal the doing is quite another thing as they currently do run the show. That said I fully support monetary reform where the power to create money and credit is transferred to the people through some independent completely transparent public institution that is not of the government.

          • Sparticus

            If I could get Soros to pay me to start a group, I could easily do it myself because the people will go along. Do I care who supplies the money? No. Just like the founders did business with other nations to throw out england, So We Must. Churches can provide easy recruitment and the numbers will run wild once some union reps are brought in. A Few PR people would pay a big dividend on that DOW short so I would be very generous. Control is something these IDIOTS do not have. The people are in a Coma. Wake them Up and its game over for the Banker-Gov.

          • JerseyCynic

            oh, Sparticus. Have we already been consumed?

            MUST READ

            Capital as the Cutting-Edge AI App

            “…This shift has been anything but sudden. Capitalism’s transformation from a physically organized means of production to pure mathematical abstraction began as computing truly came into its own in the early 1970s. It developed in tandem with the rise of neoliberalism as our reigning economic ideology. Neoliberalism—which really means the resurgence of neoclassical economic orthodoxy—might be called the operating system for capital as artificial intelligence….”


  • ICFubar

    We can be certain that those who run the human economy have looked at these problems and have found solutions to a growing robotic population, a superfluous human population and maintaining the wealth and the power construct within the top levels. These apex elites control over money and law allows them to construct any type of economy, social compact and the size and nature of society that they may wish in the plying of mastery less some universal revolution. While the thoughts is this article may hold under the present economic parameters these parameters can and will be changed to suit a ruling elite and their control over advancing technologies. Thinking that we may all own a ‘replicator’ at some future point will also likely point to a fully controlled human and robotic population in the same instance as the trade off.

  • Jed Grover

    A.I. Artificial Intelligence Meryl Streep, Robin Williams, Jude Law
    Bicentennial Man Robin Williams, Sam Neill, Oliver Platt

  • Black Swan

    ” One of the saddest lessons of History is this: If we’ve been bamboozled ( to trick, deceive, dupe, confuse, swindle, defraud) long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It is simply to painful to acknowledge-even to ourselves-that we’ve been so credulous.” Carl Sagan