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Documentary, Masters Of Money Part 3 Karl Marx
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00:00Dover.
00:09The most dangerous man in Europe is about to arrive on Britain's shores.
00:15His preachings are so incendiary he's been forced out of his native country.
00:23Only liberal Britain will tolerate his presence on her soil.
00:33He heads to London to live in exile.
00:37The year is 1849.
00:44But today that man's writings are still dangerous.
00:49They're so radical, so revolutionary, they continue to divide the world.
00:56It's been more than 150 years since he started writing about the world.
01:01But you know what?
01:02If you're looking for an explanation of the global economic crisis,
01:05he's a surprisingly good place to start.
01:08With everything going so wrong, you have to wonder, is Karl Marx turning out to be right?
01:20Most people know Marx as the father of communism.
01:23You might be surprised to hear that most of what he wrote was about capitalism.
01:29And today his ideas about that are being taken seriously right at the heart of global business.
01:38His analysis was pretty on the button and explains a lot, I think,
01:42about some of the things that we see going on around in our economy today.
01:47For Marx, the best argument against capitalism was that it was inherently unfair.
01:52His ideas on inequality have more resonance than ever today.
01:57What Marx did do is to install this sense of urgency.
02:02Things cannot go on forever the way they are.
02:07In this series I'll tell you about the lives and revolutionary thinking of three extraordinary men.
02:16John Maynard Keynes, Friedrich Hayek and Karl Marx.
02:22Their worlds were changing as never before.
02:25They saw that the fate of nations would hang on the power of money.
02:29And they had radically different ideas about how to control it.
02:32Today, the stakes could hardly be higher.
02:39All three of these men were giants whose ideas live on.
02:43But they speak to us right now because they, more than anyone,
02:47recognise the double-edged power of money.
02:50How markets could transform all of our lives but also plunge us into chaos.
02:56Keynes and Hayek argued about whether government should try to tame this force of humanity.
03:01human nature, capitalism.
03:04Karl Marx had the most radical advice of all.
03:07Get rid of it.
03:09In 1989, Karl Marx's reputation lay in ruins.
03:34What a mess.
03:35For most of us, the fall of the Berlin Wall meant the end of Marx.
03:39Millions rejected the horrors of a violent and repressive police state.
03:46And because the communist countries claimed Marx as their inspiration, his ideas were cast aside as well.
03:53When this war came down, I was just studying economics at university.
04:00Back then, we knew, or we thought we knew, two things about Marxism, communism.
04:07One was it hadn't delivered freedom for the workers.
04:10Quite the opposite.
04:11And the other, just as bad if you're an economist, is it hadn't delivered prosperity.
04:12The communist approach to the economy just hadn't delivered freedom for the workers.
04:17Quite the opposite.
04:18The other, just as bad if you're an economist, is it hadn't delivered prosperity.
04:24The communist approach to the economy just hadn't worked.
04:30While the free market West took great strides, the communist planned economies had been left behind.
04:37Marx's reputation as an economist was in shreds.
04:43In the last few years, something strange has happened.
05:04It's like the global financial crisis has brought Karl Marx back from the dead.
05:09Now, we still don't care what he said about communism, but people are going back to his damning assessment of capitalism,
05:16all its deep-seated flaws.
05:19With a nagging doubt, is it all now coming true?
05:25When times were good, Marx was nowhere.
05:28But now the Western economies are in crisis.
05:31He's attracting new interest right at the heart of the economic establishment.
05:36From a former IMF chief economist.
05:40Marx is right on a number of dimensions.
05:43He certainly is right that income inequality can be a source of tremendous tension.
05:52To the man who saw the 2008 crisis coming.
05:55He understood that there are situations in which capitalism and globalization can lead to economic crisis.
06:05And an economist at one of the world's leading banks.
06:10It's quite hard to convince people who live in Chelsea or Chelmsford that this is of great relevance to them.
06:15But actually, it's worth a bash.
06:20Anyone in Chelsea or Chelmsford who thinks Marx is only about communism is in for a shock.
06:26It's what he said about capitalism that rings so true today.
06:35Marx's key insight was that capitalism was inherently unstable.
06:39He said we'd lurch from crisis to crisis and society would become increasingly unequal.
06:45Marx divided the world into bosses and workers.
06:52For him, they would always be at odds.
06:55And that battle was a recipe for crises.
07:01To make profit, bosses squeeze what they pay workers.
07:05The crisis comes when workers then don't have enough money to buy what bosses are trying to sell them.
07:11And for decades after World War II, that looked completely wrong.
07:17We had years of stable growth and the workers were taking a larger and larger share of the pie.
07:23But not anymore.
07:24Marx would explain this crisis in terms of the fact that ordinary people haven't got enough money to spend.
07:36Why haven't they got enough money to spend?
07:38Because there's been a big redistribution over the last few decades away from ordinary people towards capital, towards wealth.
07:46And for Marx, there's no turning back.
07:53He thought there were laws of motion running through human history.
07:58Capitalism would produce bigger and bigger crises and then it would collapse.
08:03And he believed that the force driving us to this final collapse was the same one that built our world in the first place.
08:15The power of money.
08:19Marx had a very simple formulation about crises, which is that they are manifestations of the fundamental flaws or contradictions, as he called them, of capitalism.
08:30How would Marx have suggested solving the crisis is, of course, by abolishing capitalism.
08:39Is capitalism living on borrowed time?
08:45Are you asking me? Are you asking me?
08:48Sometimes it doesn't feel that far-fetched.
08:51Here's why I've been thinking more about Marx.
08:57It's because the last few years hasn't felt like an ordinary recession.
09:01It hasn't felt like a crisis for one economy or for a group of economies in the West.
09:06At times it really has felt like a crisis for the system, for capitalism as we know it.
09:12You want a bigger explanation.
09:15And no one's ever had a bigger explanation for everything that's happened than Karl Marx.
09:31Capitalism's most implacable critic was born in the picture postcard town of Trier, in what is now southwest Germany.
09:38Today, his birthplace makes its own contribution to the local economy.
09:49It's a big draw for tourists.
09:53But do you still have a lot of people coming here, tourists from around the world?
09:57We have more than 40,000 tourists here, and 25% came from China.
10:05So a quarter of them come from China to see Marx's birthplace.
10:11And what do they buy? What do they like?
10:13They like the red chocolate.
10:15The Karl Marx chocolate. Maybe I should get some of that as well, actually.
10:18And the wine.
10:20Marx's father, Heinrich Marx, he had a wine yard nearby Trier.
10:24And you don't think that Karl Marx would mind you selling all this stuff?
10:29It's a bit capitalist having this shop.
10:31Perhaps he did enjoy it, because he had a good humour too.
10:41The man with the big theory about our world had big dreams right from the start.
10:46When he was 17, Marx had to write an essay about picking the right career.
10:54He said the best position in life was to serve all of mankind, so your deeds would live on perpetually at work, and over your ashes would be shed the hot tears of noble people.
11:05I wonder, would that young man, that rather grand young man, be surprised to hear that his first home had been turned into a museum?
11:14Probably not.
11:19But for all his ambitions, Marx was hardly a model student.
11:22When he was at university in Berlin, he earned a reputation as a radical thinker.
11:31Marx comes across as a young man as this sort of energetic, fiery, hairy figure.
11:39He was known as the wild boar, or the moor, which sort of points to his Levantine complex.
11:46He was full of ideas, he was full of debate, he liked big drinking sessions and then deep philosophical debate about the nature of Christ and German Romanticism and politics.
11:57By the time he was 24, Dr Marx was a bit of a Renaissance man.
12:08He was an expert in law, philosophy, you name it.
12:11In fact, the only thing he didn't know much about was economics.
12:21That all changed in 1842.
12:23Marx, by now working as a journalist, heard about a controversy in this wood that would help shape his understanding of how the world works.
12:39Peasants taking sticks from the forest floor to use as firewood were being prosecuted for theft.
12:45Wood had been gathered here for centuries, but now the landowners had declared it belonged to them.
12:50What had been freely shared was now private property.
12:57You could say that thinking about this question turned Marx into an economist, but that wouldn't really capture it.
13:05He came to think that economics, the nature of economic relationships between people, were at the heart of absolutely everything.
13:12The foundations of Marxist thinking was materialism, that when you cut away religion, ideology, politics, at its root were the material relations between man, the need for food, the need to have a roof over your head.
13:30This is what ultimately drives so much of human interaction.
13:35What was unique in Marx, he didn't see economy just as a special sphere.
13:41He saw economy as the structuring principle of the entire social totality.
13:48For Marx, it all begins with private property, which divides the world starkly.
13:57There are those that have it, and those that don't.
14:01Take this wood. Before it became private property, I could do what I like with it.
14:06I could heat my house with it. I could make a chair and exchange it for food.
14:12But if it belongs to someone else, the whole relationship changes.
14:16Now Marx would say, I've become a member of the proletariat.
14:20Now I have to work for the owner of the wood, the capitalist, for a wage.
14:25Then he can sell what I've made for more than he paid me.
14:28Look what's happened. Something that was part of my life is now a financial transaction.
14:34The capitalist made profit. He can use that to buy more wood, build factories, make more profit.
14:40And so it goes on. Profit is now the heart of everything.
14:50So there you have it. The Marxian view of capitalism.
14:54Or the gist of it, anyway.
14:55If you want more, you'll have to wade through hundreds of pages of Marx for yourself.
15:00The key point for us is that that driving force of capitalism,
15:04the need to earn more and more profit,
15:06well Marx thought that was also a recipe for constant crises.
15:14So Marx would say you could trace the roots of the crisis we're in today
15:19right to the very heart of capitalism, to its need to generate profit.
15:25What Marx was seeing in Trier was a world in flux.
15:42Feudalism was on the way out. An entirely new way of doing things had arrived.
15:46Now we know what capitalism is really made of.
15:51And the power of money today means a lot more than just throwing a few peasants in jail.
15:56A bunch of guys in a trading floor can turn the entire economy upside down.
16:00Around the world, all of our lives depend on markets, on capitalism being able to deliver.
16:10If Marx is right, if it's fundamentally flawed, well, that's a really big problem.
16:16We might see a complex modern economy, which all of us have a stake in,
16:27but Marxists would say the same old rules still apply.
16:31For them, who owns what still means everything.
16:34They see workers still slaving away.
16:40And capitalists, or bourgeoisie, still exploiting them, always striving to make more profit.
16:47In Marx's world, any capitalist that doesn't seek maximum profit is soon replaced by one who does.
17:02So the system follows a completely predictable course, he would say, to its own destruction.
17:08It's not an idea that many people accept.
17:14He was completely wrong, including the idea that capitalism was merely a phase,
17:20and contained within it the seeds of its own destruction.
17:23That's not the case.
17:25Well, everything is bound to collapse if you wait long enough.
17:28I mean, the Earth's going to, you know, be sucked into the sun, someday, you know.
17:32You'd be forgiven for thinking the total collapse of capitalism sounds a little implausible.
17:41How could seeking profit be so disastrous when it's done such amazing things?
17:49Just look at how we eat under capitalism.
17:53We get fresh fruit flown in from all over the world.
17:57We can choose from 700 types of breakfast cereal.
18:02We have enough of it, and it's all safe to eat.
18:06This incredible plenty, and the technology it depends on, didn't come from the state.
18:13It's what happens when you let capitalists compete for profit.
18:17They didn't do it for our benefit.
18:21They did it because it made them rich.
18:23So, at first glance, Marx's idea that capitalism's search for profit would be its downfall sounds absurd.
18:33Profit may often sound venal, it may often sound wrong, but it is what pushes progress ahead.
18:38Profit is actually what drives the world forward, and that's what Marx could never quite handle.
18:43The profit motive is essential.
18:44I mean, after all, what is the profit motive? It's just a way of achieving a better society by people wanting to better their own individual lot.
18:55When you think of how fundamentally the profit motive has shaped and enriched our world, it's no wonder Marx fell out of favour.
19:07But you shouldn't dismiss Dr Marx quite yet.
19:12It's true, he talked a lot about class exploitation, misery, chaos, but he didn't think capitalism was all bad. Far from it.
19:20This cocktail bar in London's Soho hides a revolutionary past.
19:29It used to be the Red Lion pub, site of a clandestine meeting of communists in 1847 that would echo down the ages.
19:38It was at that meeting that they commissioned Karl Marx and his sidekick Friedrich Engels to write one of the most incendiary pamphlets of all time, the Communist Manifesto.
19:54Some of this you probably know, the famous opening line, a spectre is haunting Europe.
20:07And of course, the end about the workers having nothing to lose but their chains, they have a world to win, working men of all countries unite in capital letters.
20:18But what you probably don't know, what I find most interesting, is what's in the middle, one of the most perceptive and admiring bits of writing about capitalism I've ever read.
20:31In fact, it reads a lot truer now than when it was written.
20:34I think what's surprising about a lot of Marx's writing is that you find in amongst the communism a lot of good analysis of capitalism and actually also find within it quite a lot of praise for capitalism.
20:49Marx's attitude towards capitalism is basically ambiguous.
20:55At the same time, he was honest here, Marx, ultra-fascinated.
20:59He was fully aware that this is the most productive dynamic system in the history of humanity and so on.
21:08The truth is, Marx did understand that the drive for profit would achieve incredible things.
21:13It has been the first to show what man's activity can bring about.
21:20It's accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts and Gothic cathedrals.
21:26It has conducted expeditions that put in the shade all former exoduses of nations and crusades.
21:31He did really get the kind of global aspect.
21:36He got the idea that people were suddenly being able to get things from all the way around the world in a completely new way and the impact of that.
21:44The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe.
21:53It must nestle everywhere, settle everywhere, establish connections everywhere.
21:58It creates a world after its own image.
22:05But you know there's got to be a downside for the bourgeoisie.
22:10Modern bourgeois society is like the sorcerer who is no longer able to control the powers of the netherworld whom he has called up by his spells.
22:19What the bourgeoisie therefore produces above all is its own grave diggers.
22:26Its fall and the victory of the proletariat are equally inevitable.
22:38It's stirring stuff but it does raise a bit of a puzzle.
22:40How can Marx think the capitalists, the bourgeoisie, are so brilliant and yet so doomed?
22:48Well for him it all came down to the way they treat their staff.
22:51To understand Marx's analysis of crises we have to first understand the capitalism that he knew.
23:07Nineteenth century capitalists might have built wonders surpassing Egyptian pyramids.
23:12But they also forced their workers to endure terrible conditions and pay.
23:27The Industrial Revolution and all the incredible achievements that followed were made possible by coal miners.
23:33This is a replica of what it were like at Victorian era underground.
23:40The man you can see at far side, he had a pick and shovel and he'd work the coal, fill that cough and then his wife had to drag that coal behind her to a loading point which could be up to 30, 40 metres away.
23:53I didn't realise that their husband and wives were working there.
23:56Oh yeah, they were all families.
23:58They needed little boy or little girl to work this door as well.
24:01But if you took the job you had to sort of provide small child.
24:06The only light they had between them were a candle which the dap kept so you couldn't see what he didn't call it.
24:11So the little boy or girl was sat on their own in the dap for 12 hours a day.
24:18It is difficult to overstate the horror of industrialisation in Europe.
24:24In 1829 Liverpool, for example, a life expectancy at birth was about 28 years.
24:31And that was the lowest age since the Black Death.
24:35So the impact of the Industrial Revolution on life chances was absolutely terrifying.
24:40By 1849 his revolutionary writings had got Marx banned from everywhere but Britain.
24:50Here he could observe the power money had to ruin lives, at a suitably safe distance of course.
24:58I think in the last few minutes I've come closer to what it was actually like the drudgery of Victorian times than Karl Marx ever did.
25:09He never went to a mine and as far as we can tell he only went to a factory once towards the end of his life.
25:15But it didn't stop him writing vividly about the horrors of Britain's dark satanic mills.
25:20The horrors of Victorian working conditions clearly shaped Marx's economics.
25:32In his time, minimum pay for proles meant maximum profits for bosses.
25:37And any bosses who did choose to pay more usually went bust.
25:41He thought there would always be downward pressure on wages and that wages would come down to the minimum that enabled bare survival.
25:50They couldn't go lower than that, otherwise the workers would die.
25:53But he thought they'd be depressed down to that minimum.
25:55The reality, of course, has been the opposite.
25:57It has been a continual advancement in wages, year in, year out, decade in, decade out.
26:06Marx was wrong.
26:07He thought it would all get so bad the workers would overthrow the system.
26:14Yet even as he was writing, reformers were beginning to get rid of the worst employment practices.
26:21Capitalism got kinder, not nastier.
26:24But the idea that the competing interests of bosses and workers would cause crises,
26:30well, that does seem relevant today.
26:31Now, it's a very sophisticated argument, so I'm going to need children's toys to explain it.
26:45But let me say, right at the start, none of these toys endorse any kind of violent revolution.
26:49Now, here's the mine owner, capitalist, miners, with or without hat.
26:59Now, imagine that there aren't very many miners around.
27:03Then, the mine owner has to compete with the other capitalists for workers.
27:09He probably ends up having to pay them more than he'd like to.
27:14The trouble is, those higher costs cut into profits.
27:20Now, if that's happening across the economy, you've got a declining rate of profit,
27:25and a lot of capitalists going out of business.
27:28You get a crisis.
27:30You get countless workers losing their jobs, having a terrible time,
27:33until finally wages fall far enough, the capitalists can go back to exploiting them again.
27:40So, high labour costs are bad for business.
27:45But what makes the collapse of capitalism inevitable for Marx
27:49is that the bosses are in trouble even when they have things their own way.
27:53Now, imagine the opposite situation. You've got loads of workers, all of this lot, competing for a single job.
28:04Then, well, no wonder he's smiling. The capitalist only has to pay the workers the bare minimum.
28:13This bucket is what Marx would have called the industrial reserve army of the unemployed.
28:20As long as that's full, this lot can keep paying very low wages and keep making profits.
28:27Except, in the end, there's a problem.
28:32Because badly paid workers don't spend very much, and not very much spending in an economy is not good for business.
28:37You get another crisis, more capitalists going bust, and this crisis is going to be harder to fix.
28:44So, you can see why Marx thought the capitalists were in trouble no matter what they do.
28:49They never want to pay the workers more money.
28:52They always need to make more profit.
28:54But in seeking out profit, they end up eroding the basis on which it's made.
28:58They've forgotten, if you like, where their money ultimately comes from.
29:01The punchline, as ever with Marx, is that capitalism is doomed.
29:10So that's how problems with wages can cause crises, at least in theory.
29:16But how is any of that relevant to right now?
29:21A Marxist would say that little parable with the toy men tells you everything you need to know about the financial crisis we've just seen.
29:27In fact, they'd say you could explain the last 40 years of world history entirely in terms of capitalism's desperate need to have the advantages of a ready supply of cheap labour, but none of the costs.
29:42And you don't have to take my word for it.
29:43Let's take a look at the last 40 years of history through the prism of Marxist theories to show how they might explain the mess we're in.
29:58An imaginary Marxist broadcasting corporation would see it all as a good old 1970s-style class struggle.
30:07As usual, the world's divided between workers and capitalists, always fighting to get a bigger slice of the pie.
30:16And the crisis happened, Marxists would argue, because the capitalists have been coming out on top a bit too often.
30:22The fight is over wages. Capitalists want to pay less. The workers want to get more.
30:31In the 70s, powerful trade unions battled to keep wages high.
30:39Then we come to the 80s. Fight back time for capitalists.
30:47There she is. Look, can you see her now?
30:50Marx would have seen Margaret Thatcher and Ronald Reagan as acting purely in the interests of the capitalist bosses.
30:56It was their governments that helped business by getting rid of the obstacles that made it hard to cut wages.
31:05The violence and intimidation we have seen should never have happened.
31:10It is the work of extremists. It is the enemy within.
31:14If they do not report for work within 48 hours, they have forfeited their jobs and will be terminated.
31:20So for the Marxist Broadcasting Corporation, the capitalists won in the 1980s and they kept on winning.
31:36The guaranteed high wages and job security that workers had enjoyed until the 70s had gone.
31:42And downward pressure on wages started to lay the seeds of the crisis we see today.
31:58Well, it's great telly. Is it actually true?
32:02Well, we know the Marxist view of history is right about one thing, at least in Britain and America.
32:06Earnings at the very top have soared in the last few years and everyone else has been squeezed.
32:13In Britain, real earnings have been flat or falling for the best part of 10 years since before the crisis.
32:20And in America, that's been happening since the 70s.
32:27In the United States, a full-time male worker, median, income has stagnated for a third of a century.
32:34No increase. Household income today is the same as it was 15 years ago.
32:42All the increase to the income has gone to the top.
32:46The share of income in the United States that was going to the top 1% of the households 20 years ago was around 12%.
32:57Today, that share is closer to 23%.
33:09Things haven't gone that far in the UK, but inequality is certainly creeping up the agenda.
33:15So have the greedy capitalists been picking the pockets of the workers?
33:20So why do I think all that money has been flowing to the top?
33:28Well, I don't think it's a big conspiracy, but there have been social and political changes that have made a difference.
33:34We used to have really big unions. We used to have very high tax rates on rich people.
33:41And we had social norms. It just wasn't done for the people running a bank to take a huge chunk of the profits for themselves.
33:48Those things help keep a lid on inequality. We don't have them anymore.
33:54But really crucial to all of this has been the changing structure of our economy.
33:58A lot of it is down to new technology.
34:12Work previously done by hand is now done by machines.
34:19With fewer workers needed, there are more competing for every job, meaning bosses can pay them less.
34:24But perhaps the most significant factor is globalisation.
34:33With falling barriers to trade around the world, global business has gained access to a giant new pool of cheaper labour.
34:40You have brought into the market now millions and millions of new workers in China, in India, in other parts of Asia, in parts of South America, Brazil, for instance.
34:54So that process has transformed the capital labour ratio on a global scale.
35:03For example, an analyst can as well be sitting in the Philippines or in Mumbai to do the job that is done at a much higher price in New York.
35:15Many workers in the rich countries are now competing with an industrial reserve army running into the billions.
35:27I think in emerging market economies, there will be an overwhelming vote in favour of what has happened, because almost everyone is better off than they were and would have been.
35:42But that is less evident in the industrialised world, where many lower paid people have become even lower paid relative to those who have prospered.
35:50And that is a concern.
35:56For years after World War Two, we could be pretty sure Marx was wrong.
36:00Where you had capitalism, it was working pretty well.
36:03You could talk about a rising tide lifting all boats.
36:07But you look at the global economy today, I think you see a capitalism that Marx would recognise.
36:12It has lifted hundreds of millions out of poverty in China, but for most ordinary people in the West, the system is not working at all.
36:21For them, capitalism is not coming through on its side of the deal.
36:29It is an analysis that rings true even for the leader of the world's biggest economy.
36:34Long before the recession, jobs and manufacturing began leaving our shores.
36:42Technology made businesses more efficient, but also made some jobs obsolete.
36:47Folks at the top saw their incomes rise like never before.
36:52But most hard-working Americans struggled with costs that were growing, paychecks that weren't, and personal debt that kept piling up.
37:00MUSIC PLAYS
37:15Marx would say this squeeze on wages was the root cause of the huge economic crisis that we have been living through.
37:23But you might see a problem with the Marxist explanation.
37:28If it was all down to low wages, you'd expect the crisis to have started where people spend their pay, out in the real economy.
37:38One way or another, that is how most of the recession since the war have got started.
37:42But this time, it wasn't the high street that sank the city, it was the other way around.
37:47The explosion that rot the global economy in 2008 was detonated deep inside the banks.
37:54So how would Marx link low wages to troubled banks?
38:02The answer is, he saw capital as endlessly adaptable.
38:06It could solve one problem, low wages, but only at the cost of creating another.
38:10Remember, Marx didn't underestimate capitalism. He thought it was fundamentally flawed. He didn't think it was stupid.
38:20If large parts of the population weren't being paid enough to support demand, well, he wouldn't have been at all surprised to hear the capitalists had come up with a brilliant solution.
38:29The credit card.
38:38With consumer credit, people can carry on spending even if they haven't got the money.
38:45The economy stays afloat, and the capitalists still make their profit.
38:49So credit provided an answer to all of capitalism's woes, but only for a while.
39:00Remember, Marx thought the system was fundamentally flawed.
39:04They might be very clever, these capitalists, but now more than ever, they were living on borrowed time.
39:09As we know, it went well beyond credit cards.
39:22What ultimately brought the crisis to a head was the billions borrowed on mortgages.
39:28People thought the value of their house would keep going up forever.
39:31Housing credit is beautiful because if your house price is increasing and you're borrowing against the increase in value of your house, you don't feel you're borrowing away into debt.
39:44But, of course, you are.
39:47In America, it happened on a massive scale.
39:51There, as we know, the capitalists were getting richer and richer.
39:56They couldn't spend all of their extra money.
40:01Driven, as ever, by the desire to make more profit, they lent it out in riskier and riskier ways.
40:09The name given to this lending might well be familiar.
40:16Subprime.
40:17Subprime.
40:22What we did is, as the incomes of most Americans were stagnating or even declining, we said, don't let it bother you.
40:32Keep spending as if your income was going up.
40:35And they did that very well.
40:37I mean, who would oppose it?
40:39The banks were making money?
40:41The households were getting their house?
40:43The politicians who have happy constituents?
40:45I mean, there is nobody who's going to be unhappy in this process until it collapses.
40:53And we all know how it ended.
40:56In retrospect, it seems obvious lending to people who couldn't afford it wasn't a lasting solution to anything.
41:03It led to a housing bubble which burst, threatening some of the world's biggest banks.
41:09And thanks to our integrated world, what started in the United States spread and infected the entire system, causing a global recession.
41:20So here's the Marxist explanation for the crisis we've just seen.
41:26You've got a global economy with businesses getting better and better at squeezing wages and pushing up profits.
41:34But there's a problem. They're producing a lot of stuff that the workers can no longer afford.
41:39And a lot of profits looking for a new home.
41:42The global property bubble provided an answer to both those problems.
41:46The system was kept afloat on a mountain of debt.
41:51But it was only a matter of time before it all came crashing down.
41:55Capitalism is only ever as strong as its latest temporary fix.
42:00It's an extraordinary tale.
42:06And a lot of people would say it's completely wrong.
42:10Marxism doesn't actually work, but it keeps coming back because it makes for a good story.
42:16I don't think low wages played any role at all in causing the crisis.
42:20The crisis was caused by governments and central banks flooding the market with cheap credit and cheap money
42:24because politicians don't like the downturn in an economy that throws people out of work.
42:30I think it may have, to some degree, increased the level of indebtedness that people went into the crisis with,
42:37which I think intensified how deep the crisis became.
42:41But it wasn't the underlying cause. It was a contextual factor which made it a bit worse.
42:48But the idea that low wages may have contributed to the crisis is gaining ground.
42:53Even if the name Marx is as toxic as ever.
42:59George Magnus is a senior economic advisor to one of the world's leading banks.
43:06You've been writing quite a lot about Marx since this crisis started.
43:10How did you come to look at him again?
43:12Actually, it was on this trading floor.
43:14It was probably the weekend before Lehman's went bust.
43:17And it's normally a little bit noisy, but at the time it was, you could hear a pin drop.
43:24It was that deathly quiet and I could almost feel, you know, that the global system was frozen.
43:31And it was quite a scary thought.
43:34It took me back to a lot of the things that I used to read about and study when I was much younger.
43:38The days when I actually read Marx for fun.
43:42And you wrote about that. And what was the reaction?
43:45I did get a lot of hate mail, I have to say.
43:47There are a lot of people who were quite opposed to the idea that anything that was socialistic or Marxist, you know, could be at all considered serious in the mainstream.
43:57A lot of this hate mail, I have to say, came from the United States and I was accused of being, you know, an Obama clone and...
44:05President Obama, the well-known Marxist.
44:08The well-known Marxist. Very mysterious forces.
44:10So there was a lot of negative reaction from, I think, people that probably predictably, you know, had already tied their own ideological colours to the mast.
44:19But the people who do find value in Marx aren't necessarily going to follow him all the way.
44:30I think Marx helps in framing the problem, but I think the solutions have to be different given the different environment we are in.
44:40Except Marx would insist the trap is inescapable.
44:44Capitalists must seek profit above all else or they'll go out of business.
44:49So why would they ever choose to give workers a bigger share of the pie?
44:53What Marx would say is that we have to look for ways out of this crisis which look beyond the restoration of capitalist class power.
45:05And I think this is a time when we actually need to start thinking about the revolutionary solution again.
45:10But who exactly is revolting against whom?
45:16Marx divided the world neatly into workers and capitalists.
45:20But today his stark distinction is incredibly blurred.
45:24Bosses work for themselves and workers own shares.
45:26In our modern world, enough of us do have a stake in the system, whether mobile phones or pension plans, to stave off talk of armed revolt.
45:43But what about the people capitalism is failing? What does Marx have to say to them?
45:51It's really amazing how well Marx seems to understand our world, where we're more interconnected than he could ever have imagined, and where all the faces of capitalism, good and bad, are now on display in pretty much every corner of the globe.
46:12But he was the one who famously said it wasn't enough to interpret the world, the point was to change it.
46:20If you ask him what exactly we're supposed to replace capitalism with, well he had remarkably little to say about that.
46:27As Marx entered his final years, he seemed quite content with the way things were.
46:38He'd been poor for a lot of his life, but by 1856 he had enough money to move to London's suburbs.
46:47The young firebrand now looked like part of the establishment.
46:57He would spend his day walking around Hampstead Heath.
47:00He would worry about personal finances.
47:02He would worry about his daughters and the expense of their piano lessons.
47:06I mean, he lived a remarkably bourgeois life in many ways.
47:12In his later years, Marx was the world authority on the revolution, but he didn't seem to be in a hurry to make it happen.
47:21Young, hot-headed socialists from around the world would come to North London to pay their respects, win his support.
47:28Mr M seemed happy to watch and wait.
47:31Marx only really had contempt for terrorists, those who were seeking to fast-forward political progress by having change through arbitrary violence.
47:47You needed the economic fundamentals in place for a proper revolution to succeed.
47:53To understand why he didn't want a rush revolution, we need to understand, for the last time I promise, a bit more Marxist theory.
48:08As usual, he had a grand analysis of the history of the world.
48:14He saw the great sweep of humanity's endeavours from the caveman, to the slave societies of Greece and Rome, to the feudalism of kings and castles.
48:27All of which was replaced in turn by our own capitalist system of bosses and workers.
48:33Incredibly unfair, but also incredibly productive.
48:39Marx said only when we got everything we could out of capitalism could we afford to have a revolution.
48:53In his words, the knell of capitalist private property sounds.
48:58The expropriators are expropriated.
49:02All to be replaced by...
49:05More or less nothing.
49:08..Irritatingly, there's next to no alternative laid out.
49:12Marx, basically, was not the one who simply gave us a blueprint, you know, five stages after capitalism, communism,
49:20here you have the basic guidelines, what to do and so on.
49:23No, no, it's up to us.
49:25He just opened up the field.
49:27Is there an alternative to capitalism?
49:31I've no idea.
49:32Yeah.
49:33Well, I suppose there could be all kinds of alternatives.
49:35Dead silence, starvation, erm, or the end of the world or anything, but I simply have no idea if there is an alternative.
49:42It doesn't, it doesn't occur to me, it doesn't seem to me to be important.
49:45It's like saying, is there an alternative to weather?
49:48Marx said we couldn't describe what the next stage of human development would look like any more than a feudal serf could have described our lives today.
50:01To which you might say, fair enough.
50:03Except you might also think it was pretty telling.
50:06After all, nobody else has been able to describe a convincing alternative to capitalism either.
50:14I think he would have written a lot more, had he lived ten years more, on what a socialist republic would look like.
50:24And who knows, but that might have saved the world a lot of bother.
50:29Without his blueprint, we all know what happened next.
50:38There weren't any revolutions in the rich developed countries, as Marx predicted.
50:45Instead, it happened in one of the world's poorest nations.
50:49Soviet Russia may have left Marx far behind, but it was an attempt to try something else.
50:58Many have drawn lessons from its failure.
51:02The truth is, at the moment, there are different forms of capitalism.
51:05But on the big argument about whether you really want to have a communist system or a capitalist one,
51:10that is pretty much won everywhere, I think.
51:13There are more humane versions of capitalism, or more barbaric forms of capitalism.
51:19But I don't think there's a systemic alternative to capitalism.
51:23Will there ever be? Yes, I would think so.
51:25I mean, you know, nothing is forever. Absolutely nothing.
51:29And capitalism is not forever.
51:36But anyone looking for a fairer alternative knows they can't ever repeat what happened east of the Berlin Wall.
51:43Dictatorship, political oppression and millions of ruined lives.
51:48From 1945 till 1989, this was the main remand centre for political prisoners in communist East Germany.
52:03Today it's been turned into a memorial.
52:07It's possible that places like this explain why even capitalism's toughest critics today seldom talk seriously about replacing it.
52:26You can see with all these protests in Europe, Greece and so on, I was in Spain, in Greece, asking always the same question.
52:42Okay, what do you want?
52:45Apart from some purely moralistic answers.
52:48I didn't get any good concrete proposals.
52:51You know, answers like, oh, money should serve people, not people serving money.
52:57My God, Hitler and everyone would have agreed with this, I'm sure.
53:01You would have thought that with this implosion of the banking system at the heart of the capitalism in the United States with the United Kingdom and so on, there would be a huge rush to Marxism and extreme socialism.
53:18That hasn't really happened. It is quite surprising and I'm very pleased.
53:25But if memories of this place do fade, could there ever be an alternative to capitalism?
53:36Or should what happened here be a lesson for all time?
53:41If someone wants to seek an alternative to capitalism, and they're saying by seeking that alternative that capitalism is a system rather than a fact of life.
53:53And they're saying that, for instance, that human nature can be altered. Fundamentally, they're revealing themselves as a utopian.
54:00And the problem with utopia is that it can only ever be approached across a sea of blood, and you never arrive.
54:06This is my big mantra, when we leftists are accused of utopians. Maybe, but the only real utopia is to think that with some cosmetic changes, things can go on indefinitely the way they are now.
54:21A rising starry from your slumbers, a rising criminals of once, for reason in revolt and thunders, and at last spends the age of...
54:37Marx died in 1883. In a speech at his grave, his long-time friend and collaborator Friedrich Engels declared, his name and work will endure through the ages.
54:48For most of the 20th century, his name did endure, though usually for all the wrong reasons.
54:58But now it's the 21st century, what can this long-dead Prussian really say to us?
55:06Fundamentally, I think Marx reminds us that if capitalism doesn't work for everyone, it might not work at all.
55:22When you look at what's happening, the pressure on wages, can you understand why people are sort of looking again at some of Marx's analysis?
55:32Yes, the big picture. The workers versus the capitalists. And there's no doubt that there have been significant changes in inequality and in the distribution of income, which make you pause about the benefits of the development of output and prosperity that we've seen.
55:52I don't think you can afford to believe that the benefits of a market economy in bringing prosperity will be there unless there is a collective commitment to keep the system going.
56:03And that does require people to believe that everyone will benefit in the end.
56:07I think some of the ugliness of capitalism that he saw in the 19th century seems to be reappearing in the 20th, in 21st.
56:19In a way, we have to keep our perspective on this. Health conditions are much better. Living standards are starting from a higher level. But it is still the case that things aren't the way they ought to be. And they're not moving in the way they should be.
56:41But let's face it, Marx wasn't just talking about tweaking the system. He had a much grander claim than that.
56:52Did Marx change the world? Of course he did. And after that funeral, people did weep hot tears at his grave, just as his 17-year-old self would have wanted.
57:01Probably many more lived to curse his name. But there's no getting around it. Capitalism is still here.
57:12Marx was right to see capitalism as inherently unstable and often unfair. Keynes and Hayek saw that too. But Marx was the first.
57:22And unlike them, he didn't think we should find a way to live with it. He said capitalism would bounce back from crises and reinvent itself.
57:33But in the end, a compelling alternative would appear and capitalism would collapse.
57:40For all that rings true now in Marx, on that he seems to have been dead wrong.
57:45Maybe he did underestimate capitalism. He certainly overestimated the opposition to it. I think the system needs to reinvent itself now, again.
57:55If it can pull that off, we'll be talking even less about Marx a century from now. But the last few years have left capitalism with plenty to prove.
58:04The Open University has produced six one-minute animations to explain some of the key economic ideas that affect all of us.
58:19So if you want to learn how to spot an invisible hand or other secrets of economics, go to bbc.co.uk slash masters of money and follow the link to the Open University.
58:30Next this evening here on BBC HD, stay with us. It's Never Mind the Buzzcocks.
58:38This is Never Mind the Buzzcocks.
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