AI appears to be both massively deflationary *and* inflationary. Which effect will win? When? **The deflationary case is straightforward**: AI dramatically increases productivity, making goods and services cheaper. "Intelligence capability per dollar will drop 100x/year," according to Will Depue at OpenAI.[^1] Already, "excluding rent, it is possible to survive and be entertained astoundingly well on very little."[^2] Ben Thompson frames this as abundance approaching infinity—AI becomes so productive that it makes most things essentially free.[^3] **But the inflationary pressure comes from capital demand**. As I explored in [[Real interest rates may increase in the next 10 years]], AI means capital can now "wake up" and make more money. A world where capital is self-replicating becomes massively more in demand. Money follows supply and demand just like everything else, so as demand for capital rises, its price (interest rates) would rise, causing inflation. One resolution: both could be true in different phases. Massive upfront capital investment (inflationary pressure on rates) could eventually yield such abundant AI capabilities that the deflationary effects dominate. But if scaling laws continue and there's always a more expensive, more capable model to build, capital demand might stay permanently high. --- *Research* *Historical precedents — does a technology run deflationary on output but inflationary on capital?* - [The Death and Birth of Technological Revolutions](https://stratechery.com/2021/the-death-and-birth-of-technological-revolutions/) — Perez framework: a capital-investment surge precedes each tech golden age. - [AI Datacenter Energy Dilemma](https://semianalysis.com/2024/03/13/ai-datacenter-energy-dilemma-race/) — infrastructure and power, not chips, are what cap AI scaling. - [Economics and AI take off](https://caseyhandmer.wordpress.com/2025/08/19/economics-and-ai-take-off/) — cumulative capital deepening is what turns a tech transition into GDP growth. - [Will data centers crash the economy?](https://www.noahpinion.blog/p/will-data-centers-crash-the-economy) — the AI datacenter boom measured against historical infrastructure bubbles. - [Pipes to Bits: A tale of two infrastructure booms](https://www.theatomicinvestor.com/p/pipes-to-bits-a-tale-of-two-infrastructure) — Big Tech went asset-light to infrastructure-heavy, echoing dotcom telecom. - [Making It Up in Volume](https://blog.boxcars.ai/p/making-it-up-in-volume-how-the-ai) — Global Crossing redux: overinvestment leaves cheap infrastructure behind even when investors lose. - [Power and Progress](https://samataindia.org.in/data/books/Power-and-Progress-Our-Thousand-Year-Struggle-Over-Technology-and-Prosperity-(Daron-Acemoglu-Simon-Johnson)-(Z-Library).pdf) — who captures a technology's gains is a political choice, not automatic. - [Electrifying equality](https://cepr.org/voxeu/columns/electrifying-equality-how-electricity-adoption-boosted-inclusive-growth-early-20th) — electricity lifted lower-skilled workers — the opposite of what robotization does today. - [Automation and New Tasks](https://concetticontrastivi.org/wp-content/uploads/2024/06/acemoglu-restrepo-2019-automation-and-new-tasks-how-technology-displaces-and-reinstates-labor.pdf) — automation displaces labor and reinstates it by creating new tasks, at once. - [There was no great stagnation](https://worksinprogress.co/issue/there-was-no-great-stagnation/) — IT's gains were systematically mismeasured; the deflation was real but hidden. *Investment-strategy implications — own "dumb capital" like real estate, or the means of intelligence?* - [Rent vs Buy, AI Transition Edition](https://jeremiahengland.substack.com/p/rent-vs-buy-ai-transition-edition) — under AI, structure depreciates but land appreciates. - [AI, Jobs, and the Great Migration 2.0](https://bluelake-capital.com/post/ai-jobs-and-the-great-migration-2.0) — which housing markets win as AI displaces 6–50% of workers by 2030. - [Grand Transitions](https://spectrum.ieee.org/modern-world-vaclav-smil) — Smil: energy transitions take 50–70 years of heavy infrastructure before productivity shows up. - [Winners and Losers: How AI Will Reshape Property Sectors](https://www.high-yield-landlord.com/p/winners-and-losers-how-ai-will-reshape) — physical real estate gains value as scarce tangibility in a virtual world. - [Post Capitalism and Post Scarcity](https://caseyhandmer.wordpress.com/2020/11/14/post-capitalism-and-post-scarcity/) — we already hit post-scarcity for power and compute; housing could be next. - [Housing and wealth-building](https://www.noahpinion.blog/p/housing-and-wealth-building) — land value vs structure value is where economic shifts actually land. - [Lessons for Today from Past Periods of Rapid Technological Change](https://desapublications.un.org/file/126/download) — breakthroughs take decades to bite because complementary investment lags. - [Ray Dalio's All Weather Portfolio](https://www.fool.com/investing/how-to-invest/famous-investors/ray-dalio/) — balance growth assets against inflation hedges when the lregime is uncertain. - [The World After Capital](https://worldaftercapital.org) — scarcity has migrated food → land → capital → attention as tech advances. *Changelog* - 2026-06-15 Moved the embedded reading lists into a Research section - 2025-10-10 Added historical-precedent and investment-strategy research - 2025-10-10 Authored — the simultaneous deflation/inflation framing [^1]: Will Depue (OpenAI), quoted in [AI #126: Go Fund Yourself](https://read.readwise.io/read/01k10et2v9vm0r4fnkr7jzhnqa) by TheZvi [^2]: Zach Coelius, [Twitter](https://twitter.com/zachcoelius/status/1459713470593572864) - "We are seeing the tremendous deflationary power of technology in living color now. Excluding rent, it is possible to survive and be entertained astoundingly well on very little." [^3]: Ben Thompson, [Meta's AI Abundance](https://read.readwise.io/read/01jfjqwawarch3sh8tyt8k5xza) - "Stratechery from the beginning has been focused on the implications of abundance and the companies able to navigate it on behalf of massive user bases — the Aggregators. AI takes abundance to infinity, and Meta is the purest play of all."