What breaks the cycle is that eventually someone uses all this capital to found a business making use of all these unemployed people. They're an untapped resource.
You're basically describing technological progress, but there's no reason to assume that tech will always replace expensive laborers with relatively smaller amounts of automation. All that productivity created by new technology represents increased demand, and having workers go idle is just as much an inefficiency as using an older process. An inefficiency that can be (profitably) corrected with the right business model.
Tech can, for instance,replace expensive components with cheaper labor (think usability inventions), or help scale up existing production to meet greater demand (think bigger factories). Both of these require more workers in the aggregate, not less.
You're basically describing technological progress, but there's no reason to assume that tech will always replace expensive laborers with relatively smaller amounts of automation. All that productivity created by new technology represents increased demand, and having workers go idle is just as much an inefficiency as using an older process. An inefficiency that can be (profitably) corrected with the right business model.
Tech can, for instance,replace expensive components with cheaper labor (think usability inventions), or help scale up existing production to meet greater demand (think bigger factories). Both of these require more workers in the aggregate, not less.