Gillian Tett points out that, despite talk of a technology boom, corporate investment is weak. This isn't as paradoxical as it seems. In fact, techno-optimism might be one reason for low investment.

I say so for a simple reason: future technical progress could well render today's investments unprofitable. If you spend £10m installing robots in a factory today you might be able to undercut your non-robotized rivals. But if a new company later installs better robots for £5m, it will undercut you and destroy your profits. As Marx wrote:

In addition to the material wear and tear, a machine also undergoes, what we may call a moral depreciation. It loses exchange-value, either by machines of the same sort being produced cheaper than it, or by better machines entering into competition with it...When machinery is first introduced into an industry, new methods of reproducing it more cheaply follow blow upon blow.

This is true not just of process innovation but product innovation too. For example, Nokia benefited hugely from the first wave of innovation in mobile phones, but suffered hugely from the later wave which gave us the smartphone.

The point generalizes. William Nordhaus has shown that the returns to innovation are tiny, in part because later innovations displace earlier ones. And Jeremy Greenwood and Boyan Jovanovic say that one reason for the stock market's fall in the 1970s was that investors anticipated old firms suffering (pdf) moral depreciation because of the emergence of new IT firms and methods.

My chart shows other evidence for this. It shows the UK profit rate from 1855 to 1938*, the second industrial revolution. This was a time of phenomenal technical progress (pdf): the telegraph, the Bessemer process, electricity, steam ships, numerous chemicals, the production line, cars and radio. And yet the profit rate seems to have trended downwards after the late 1860s - consistent with later innovations destroying the profits of earlier ones.

Schumpeter called it creative destruction for a reason.

This is why I say techno-optimism might hold back capital spending: if you fear current investments will be rendered worthless by better, future ones, you'll not invest even if it is temporarily profitable to do so.

This is merely a variation upon real options theory. This tells us that, when firms face uncertainty, they will not invest even if the net present value of a project is positive, because it might become even more positive later - if, say, they can use cheaper, better technology. The idea that uncertainty holds back investment is usually discussed in terms of policy uncertainty. But uncertainty about the pace and direction of technical change can have the same effect.

Which leads me back to Marx. He said:

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production...From forms of development of the productive forces these relations turn into their fetters.

This is what we might be seeing, or are about to see. Capitalistic relations of production are fettering the development of productive forces because the fear of being unable to make a sustained profit is preventing investment in new technology.

This is no bad thing if you believe jobs are an inherently good thing and that the economy should be preserved in aspic to protect them.

There is, though, a bigger vision here - that robots can give us all a high income and free people from drudgery. It's not clear that capitalism as it presently exists can fulfill this possibility.

* My source is Mitchell's British Historical Statistics, ch XVI tables 4 and 14. You can quibble a lot with the numbers, but I suspect my broad point would survive these.