Marx, Robotics and the Collapse of Profits

By Charles Hugh Smith

Whatever commoditized robots can produce is no longer profitable; rather, the production destroys capital.

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 patreon.com.

You can read more from Charles Hugh Smith at his site Of Two Minds, where this article first appeared.


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15 Comments on "Marx, Robotics and the Collapse of Profits"

  1. Wait…..hold on…..you don’t think mass humanity is part of this robotic future do ya?

    • It might seem so…just look at Trans-humanism and AI…which has no conscious awareness and never will…that program doesn’t exist outside the realm of Human Beings. As It is only we that can conceive and know that we will cease to exist….DIE. But the corporatists and plutocrats are firmly pushing humanity into that meme.

  2. This article misses the whole point: the robots are here for the support of the coming extraterrestrial civilization that will replace this one. It’s not about saving “capitalism” which is not a system but a form of enslavement. The progenitor culture does not use money, does not have a stock market, and does not believe in a “god”. They are the GODS. We are just another proxy military/work force and sometimes food; an experiment that got them what they wanted/needed. They are the GODS.

  3. The real problem with robotic workers replacing human ones is the question of who will purchase the products? The unemployed people will have no money. This is the basic reasoning behind the Universal Basic Income concept.

  4. 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? Very simple the original debt slaves “The Serfs” of the New Feudal Age. Same as it ever was. Read the fictional Plays: R.U.R. and War with the Newts – from the 1920’s and see the future is now. https://en.wikipedia.org/wiki/R.U.R.

  5. Artificially confident contextual speculations

    • I like the idea of robots replacing us in the dangerous, demoralizing, spirit-deadening labor humans have been forced to engage in our entire existence, freeing us up to do more important things, like clean up the messes we’ve made, and philosophical inquiries with hopeful self-actualizations where we belong in the universe, but that can only occur when we are re-valued as worthy of a guaranteed income, which the elite corporatists have bridled against.

      • You will never get an unconditional UBI, it would be ecological suicide by slum ghetto explosion, mass disease and social chaos. Supply and demand dynamics are oversimplified in this piece, overlooking monopolized leverage and pure deprival of resources for power, compounded inequalities of ownership leading to warlord-landlord fiefdoms of absolute private control, conditional necessities rationing to captive tenant populations within reproductive suppression fields, competitive hunger-games hothoused evolution, elder’s committees, mandatory new eugenic religions of the future housing projects. Such are the more likely conditions attached to a UBI, unconditional love isn’t something I see in it.

        • I understand where you’re coming from but you must admit is really just one class of people asserting animal dominance over another for mere notions of superiority, by use of a secretized credit system, and cynically so. Because there’s greatly reduced need for lower class labor in a robotized economic system, this world has never seen. A lot depends upon the education system, teaching the application of practical know-how. A government not at war with it’s own people or other nations and absent slaves is still possible. As always, it’s the punk-ass personalities who are the problem. Also you can see that natural disasters are a great equalizer.

          • ” … you must admit is really just one class of people asserting animal
            dominance over another for mere notions of superiority, by use of a
            secretized credit system, and cynically so. Because there’s greatly
            reduced need for lower class labor in a robotized economic system, this
            world has never seen. …”

            Been that quite some while. Capital tells Labor it will attain the Pie in the Sky if they only work hard carrying the Can. Funny how that pie is never there for anyone from Labor.

            “Sorry, no more pie left. It had to get divided among Capital/Pharisees.”

            This is seen in video games as well, it’s known as “the cake is a lie.”

            Not sure what Capital will do when their “lower classes” Labor no longer works due to automation taking over, then no longer buys Product for not having wages. Seems the article clearly states the issues. Capital will in effect eat itself to death. No, I’m no socialist or communist but can see the writing where it is at. People will need to help people and it’ll be the common people which do, those from the South side of the fault.

            Why then need of “gubmint”? Seems it only exists any longer to act as thugs for Capital. Well if Capital dies, no need for thugs … except maybe for the bankers/Pharisees. They’re on the way out too. Folks are tired of parasites.

          • Something you need to understand is “there is no money.” We run off a credit system, one’s & zeros, held in computers and credited to accounts. The people are the ultimate source of value, nothing has value unless a human values it, banks are bogarding and creating for themselves a disproportionate share by leverage, fractional reserve practices. There’s a lot more money in the system then they’re letting on. Citizens can create & issue bonds in favor of the government, without limit, to finance whatever needs to be done. Banks aren’t the only ones able to do this and in fact should be dissallowed for those practices mentioned. Anyway, citizen bonds could finance themselves, each other and whatever needs doing in the public sphere. Government will always be needed as an umpire because there will always be conflicting rights and people arguing over access and ownership of resources. The corporate model obviously fails for its refusal to be held accountable, which has caused so much suffering, hardship and destruction on this planet. The fix is quite simple.

          • “Something you need to understand is “there is no money.” ”

            I’ve understood that quite a while. Money is merely a means of expressing value, a symbol only.

            The idea, act of usury is what enslaves. If you paid credit back at face value then there’s no great problem. I borrow one unit of credit from you today, pay you one back tomorrow and all is fine. But, Pharisees come up with the idea that if I borrow one unit of credit I need to pay back five units tomorrow, three for them, one for you and one to pay the government who supplies thugs to keep the whole ‘game’ feasible. This is also called paying back a loan at interest, usually compounded interest to boot. 🙂 See? I do understand this ‘crap’ I just don’t care to let my blood pressure get all whacked over discussing it. 🙂

            “Anyway, citizen bonds could finance themselves, each other and whatever
            needs doing in the public sphere. Government will always be needed as an
            umpire because there will always be conflicting rights and people
            arguing over access and ownership of resources. The corporate model
            obviously fails for its refusal to be held accountable, which has caused
            so much suffering, hardship and destruction on this planet. The fix is
            quite simple.”

            I disagree that a government is required beyond 13 elders, or a court de jour for upholding the honoring of contracts, deciding actual criminality and defining the discipline of such. If you go to resource based economy too, that helps defray any argument over access and property rights. Everyone owns everything but everyone also owns nothing.

            All things are there for all to use with no benefit to any or benefit to all equally. So above, so below. Oops, kind of out myself with some Gnostic babble there. 😉

            You’re correct though, the ‘fix’ is indeed simple, toss the system not working aside and start anew with a system that will work. I’m thinking Ubuntu Contributionism seems to be work-able, at least until we can establish a better means forward.

            Sure, I know, I dislike ‘isms’ as well but this one does appear somewhat different.

          • Problem with courts is they set themselves up on high horses and are eminently bribable. Only citizen/community courts with local control and participatory votes. We are the value, we can issue bonds to fund the reconstruction. (Actually that’s already happening between privates & US Treasury, but not where the funds should be spent.) Not everyone has something to contribute, the young, uneducated, misseducated, infirm; but thankfully with automation, it will all work out.

          • “Government will always be needed as an umpire because there will always
            be conflicting rights and people arguing over access and ownership of
            resources. The corporate model obviously fails for its refusal to be
            held accountable, which has caused so much suffering, hardship and
            destruction on this planet. The fix is quite simple.”

            Pardon me for seeing that paragraph as ominously bleak. I would presume your fix established one government and one owner of all resources? If so, that is why I see the paragraph as I do. If not forgive my presumption, I’m not reading too far outside of dystopias currently.

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