Physical constraint
AI capability at economically significant scale depends on a system of physical resources with different elasticity, lead times and substitution capacity.
CAPITAL ALLOCATIONTHESIS II · SEPTEMBER 2026
AI and the Physical Economy
How Resource Constraints Shape Technological Velocity
Technological velocity depends on a moving physical system.
Artificial intelligence draws on power, grid capacity, semiconductors, cooling, water, land, materials and industrial capacity that expand on different timetables. This thesis examines the resulting physical drag on technological velocity, how the binding constraint can migrate as deployment expands, and why the allocation problem becomes one of identifying the point of maximum pressure early enough for capacity to arrive before the next constraint binds.
Endogenous resource drag
AI expansion changes the resource environment supporting further expansion, allowing the severity and interaction of constraints to evolve with technological velocity.
Moving bottleneck
The binding resource can shift across time and geography as capacity, prices, substitution and complementary constraints change.
Allocation under constraints
Capital and productive capacity must be directed toward the constraints exerting the greatest marginal drag before the next bottleneck becomes debilitating.
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CAPITAL ALLOCATION