Karl, capitalism's bashful admirer

Marx's revenge, according to Meghnad Desai, is the resurgence of capitalism at the end of the 20th century and the death of what he calls statist socialism. Marx was hijacked by the Marxists and misrepresented. In the years following the Bolshevik seizure of power in Russia, in the 1917 October revolution, Marx's writings and analysis ceased to be honestly and openly discussed and interpreted. Presented by the Marxists to dignify their activities, they became articles of faith.

Desai reminds us that, contrary to the belief that became firmly established in the 1880s and 1890s after his death, Marx had not predicted the imminent demise of capitalism. Rather, he had predicted its end only after it had exhausted its capabilities for development and progress. Marx saw capitalism as an epoch in the evolution of societies, characterised by what he called the bourgeois mode of production, following the successive demise of earlier modes of production: primitive communism; the ancient, or classical; and the feudal modes. Some of these had lasted millennia. How, asks Desai, could anyone have thought that capitalism, a much more productive mode, would last a mere century or two?

Desai portrays Marx, while not a friend, as an admirer of capitalism. A quotation from Marx and Engels's 1848 Communist Manifesto reveals them thrilled by its dynamism and remarkably prescient of late 20th-century globalisation. They wrote: "The bourgeoisie has, through its exploitation of its world-market, given a cosmopolitan character to production and consumption in every country. All established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe."

Marx's analysis of history and his study of the dynamics of capitalism were exercises in positive, not normative, analysis. His work inherited ideas developed by 18th-century philosophers, most prominently Adam Smith, with his search for "the secrets of social astronomy - the laws of motion of human societies", as well as the ideas of Hegel.

The popular reading of Marx got hold of the idea that the demise of capitalism was imminent, based on Marx's analysis of the declining rate of profit and the recurrence of crises. But Marx set out several theories of the evolution of capitalism in Capital , not altogether contradictory (Desai says), but supporting a more optimistic view of its prospects. The theory of recurrent crises can be read as a theory of relatively benign business cycles that can continue indefinitely without getting progressively worse. In Capital , book two, Marx sets out a model of smooth economic growth with no end in sight. In Capital , book three, he qualifies heavily his theory of the declining rate of profits and calls it only a law of the "tendency" of the rate of profit to fall.

After this first part of Desai's book, we are treated to a romp through the history of the late 19th and 20th centuries, charting the ups and downs of capitalism and the communist experiment, taking in the development of ideas in economics and politics. The world to which Marx delivered Capital in 1867 was entering the first episode of modern globalisation. The period 1870-1913 saw great increases in trade and international capital flows. There were enormous movements of people, from Europe to America, north and south, and from India and other Asian countries. Transport costs fell, trade barriers were small and communications developed by leaps and bounds. This age came to an end with the first world war, and nothing like it re-emerged until 1989.

The book charts the problems of the inter-war years in the West - the great depression and the rise of fascism - and the postwar revival. Keynes's contributions appeared to offer a way of fixing up the deficiencies of capitalism - its cyclical instability particularly - and making it more acceptable. But the Keynesian consensus was swept aside in the 1970s by Friedmanite monetarism and restored faith in markets, supported by the revived ideas of Hayek. The collapse of communism is a triumph for Schumpeter's ideas of growth progressing by "creative destruction". Schumpeter had taken up ideas of Marx. Capitalism creates wealth but also inequality. The prospect of wealth stimulates the creation of new products and processes. These destroy wealth in some quarters as they create more in others. In this process communism could not compete.

Desai concludes by stating that capitalism has not merely survived the 20th century, it has triumphed over the challenges posed by fascism and Leninism. It is the only game in town. Desai offers an upbeat assessment of the state of the world: advancing globalisation, the spread of liberal democracy among developing countries, and growing democracy in international institutions.

The book is a hugely enjoyable read. It embraces a thrilling breadth of ideas and sweep of history, playing out events and ideas on a grand scale, and weaving them into an exciting narrative. Some may feel that it errs on the side of over-egging the pudding: the main thread of the story is illuminated by so many sidelights, so many thoughts are aired, so many events mentioned in passing. But Desai gives a clear and convincing account of Marx's ideas, and their misunderstanding in the simplified version of the popular imagination. His appreciation of the merits of resurgent capitalism and globalisation is not uncritical, it is based on a hard-headed comparison with the alternatives.

John Driffill is professor of economics, Birkbeck College, University of London.