Practical jokes, last laughs and vengeance would have been more the sphere of Groucho rather than Karl Marx. But Meghnad Desai argues that the great thinker's most prominent legacy was a huge confidence trick. Capitalism has now triumphed, it is 'the only game in town', statist socialism is 'dead', and, yes, that is what Marx had said would happen all along.

Desai, a London School of Economics professor and Labour peer, performs conceptual somersaults to pursue this contention. Most of the evidence comes from Marx's economic writings, ignored by everyone apart from Desai, previously the author of a textbook on the subject. Marx's Revenge is, however, far broader than that, racing through a history of economic thought, which is vital in that it shows what incubates the contemporary consensus in economics.

The key to understanding why Marx is tittering in Highgate Cemetery is the difference between the words Marxian and Marxist. The former refers to those who faithfully study all his works, specifically his analytical writings about the dynamics of capitalism; the latter is the reductive Bolshevism that emerged in the last century, shaped by Lenin's pamphlet on imperialism and these days incorporating a wide span of belief, including the fringes of fascism.

Marx recognised this trend. On hearing of the establishment of a Marxist party in France, he famously said: 'Je ne suis pas marxiste'. But he was subsequently ignored. Marxism in the twentieth century became defined by interpretations such as Lenin's Imperialism: the highest stage of capitalism.

In the 1920s, Das Kapital dropped off the Marxist's must-read list. Imperialism became the key text beside the Communist manifesto. Almost all debates about Marxian economics, particularly on the fall in the rate of profitability over time, were ruled out as 'uninteresting scholasticism'. 'The answers were known, Marx became a bundle of catechisms,' writes Desai.

Marx developed some pioneering economics. He was the first economist to incorporate an explanation of boom and bust within his theory. He constructed a simple model to show how profit came from the exploitation of the 'surplus value' of labour. This led to the ups and downs of profitability. But in volume II of Das Kapital Marx calculates a numerical scheme of a capitalist economy which does not run into crisis and enjoys perpetual growth.

The later volumes were published after his death, after Engels assembled Marx's notes. The famous words about the tendency to a falling rate of profit giving rise to the end of capitalism is hardly mentioned in volume III, argues Desai, and mentioned only as a possibility in volume I and in the Communist manifesto. So this misconception, misreading, or perhaps highly selective reading, of Marx has led to a vulgar simplificaton of what was a complex and nuanced body of work.

Desai's chapter six shows why some Marxists may have skipped the surplus profit exploitation equilibrium models. These technicalities, crucial to Desai's understanding of Marx, do not trip off the tongue as lightly as the 'revolt of the lumpenproletariat'. 'Popular Marxism' took Marx's more prophetic writings on the fate of capitalism, without noting that Marx had not given a timescale. If socialism is destined to usurp capitalism, but the transition period could last many hundreds of years, as the transitions between previous modes of production like feudalism and capitalism had lasted, then the prediction is not entirely helpful.

It is the political economy equivalent of Michael Fish telling us to wrap up warm because the Ice Age will return at some point. Rather than get his revenge, Desai's work seems to show Marx hedged his bets. If that is true, why should we care that his more obscure work has been vindicated?

In the process of explaining Marx's Revenge, Desai illuminates the work of Smith, Hegel, Popper, Polanyi, Keynes and Samuelson. A similarly revisionist tract would show that Adam Smith was not quite the market fundamentalist he is assumed to be.

Economics is more than a social science. It has become the theology of public policy in liberal democracies, justifying how societies are taxed, the ownership of the media and immigration policy. As its norms encroach on many other disciplines, such as politics, sociology, the law, even biology, its base assumptions and its evolution require a mainstream dissemination. Desai refers to this as 'social astronomy' which would be fair if it concerned only descriptive analyses of the structures in society. Unfortunately, Marxists appear to have indulged in too much social astrology.

It is an important book because of who it is directed at. Nobody in Wall Street or the City of London will care that Marx is now on their side. But for those who still express moral indignation at pronounced and prolonged inequality and poverty, the market is the most likely rescue route.