Imagine two companies in fierce competition with each other. Both manufacture the same commodity and this commodity is in high demand. The first company retains an entirely human workforce. The second uses automation as extensively as possible. They have robots to load and unload the machines, transport the parts, inspect, assemble, and pack and ship. They even have robots to repair and maintain the robots. These robots operate non-stop — 24 hours every day, seven days a week, fifty-two weeks a year. They do not take lunch breaks, bathroom breaks, sick days or vacations. They each work for less than $1 per hour. They are tireless and work as rapidly as they are programmed to.
Additionally, this second company does not have to worry about attempts to unionize, social security taxes, workman’s comp, OSHA regulations, health insurance, 401K matches, employee morale, or any benefits whatsoever.
Which company would you invest in?
Early adopters of the new robot technologies will have clear advantages over their competition. These success stories will spur a rush to a wider adoption of the new technologies.
But what happens if both companies fully automate? Or, more to a real-life situation, if an entire sector of the economy adopts robotization as the competitive norm. Finally, what happens if the entire economy is run by robots? Do profits go through he roof? No. They evaporate.
In a separate post we will examine how, according to classical economic theory, digital capital devours traditional capital’s value, but our purpose in this post is to understand what happens to the economy when robots replace human workers, according to Marx’s scheme of simple reproduction.
We have already looked at what happens, according to Marx, if we account robots as fixed capital investments. (Basically, the rate of profit tends to fall as the organic composition of capital becomes imbalanced.) Now we turn our attention to what happens if we regard robots as variable capital investments. After all, aren’t they replacing humans? Do they not stand in labor’s place, performing the exact same economic function? Yes and no.
Yes, they can do the work (perform the functions), but no, they do not fulfill the role variable capital plays in the traditional reproduction scheme.
Robots, accounted for as laborers, do not fulfill the necessary role of laborers in the sense that they do not constitute a demand for consumer goods. Worse, they actually constitute an increased demand for capital goods, for that is truly what they are. Thus, going back to our initial equation of simple reproduction, C2 = V1 + S1, we see that it no longer applies. Why? Because, as you’ll remember, this equation is based on the understanding that all of the demand for capital goods is represented by C1 and C2. But what are robots in this scheme if not capital goods? They must be manufactured and therefor constitute an increase in demand for the output of Department 1.
Now, we look at the equations this way:
C1 + V1 + S1 = W1 and C2 + V2 + S2 = W2 in our theoretical robot economy relate to each other, in terms of demand, as: C1 + C2 + V1 + V2 = C1 + V1+ S1 since the robots (the V‘s in our equation) now represent a demand for the output of Department 1, the capital goods sector.
By eliminating the common variables on each side of the equation we are left with C2 + V2 = S1 and, as before, this is the same equation we are left with if we examine the demand for the consumer goods sector, Department 2.
Now what we see is that in order for the economy to stay balanced all of constant and variable production inputs of Department 2 must be met by the demand of the capitalist luxury spending of Department 1. An untenable situation for any society.
This has been a long analysis of what is really a very simple observation:
Yes, it’s that simple. In an economy dominated by robots, AI, and other automations the function of the laborer as consumer is eliminated. The robots used in Department 1 do not constitute a demand for the output of Department 2, and the robots of Department 2 do not constitute a demand for the output of Department 2 either. Both sets of robots actually constitute an increase in demand for the output of Department 1.
It’s back to that simple question, “If they replace us all with robots, who is going to buy their stuff?” It is obvious that the existing structure of capitalism will have to be altered dramatically to keep the economy functioning (not to mention providing some way for the rest of the human race to survive). The idea of a universal basic income is already being floated by many observers, but this is not without its own set of problems. We will discuss this separately.
To be thorough we should mention that Marx also worked with three-department schemes and we could examine the economy as consisting of a department for capital goods, a department for consumer goods and a department which provides robots (in classical terms labor), but we won’t take the time to dissect this scheme now. All we’ll say is that since we are theorizing in the abstract about an economy run without human workers no matter how many departments we choose to examine there will never be robust consumer demand without some form of income redistribution, because as we’ve already stated:
In parts 5 and 6 of this series we take a look at extended reproduction schemes. These cover the idea of economic growth. We will see that when C2 + V2 = S1, as in our robot economy, growth is not possible.