Damn the British people, for they have let down Theresa May again. The prime minister could once count on voters to back free markets. But, she sniffs to supporters in Manchester, “Jeremy Corbyn has changed that.”

So goes the refrain of this Tory conference. “A new generation is being tempted down a dangerous path,” warns Philip Hammond: the feckless youth are seduced by visions of North Korea, Zimbabwe and Cuba. Nor is the chancellor alone. The bloviators in our thinktanks and media agree that British politics is suffering what Nick Robinson yesterday on BBC Radio 4 termed “a crisis of belief in capitalism”.

Philip Hammond's speech: what we learned Read more

Add it all up, and the Conservative frontbench and their interlocutors now have three propositions. First, the government of which they are either members or supporters is widely unpopular because the public have fallen out of love with capitalism. Second, this discontent can be localised to the young. And, finally, the alternative they prefer is the Venezuela-lite offered by Corbynism.

This is the biggest load of tripe since … well, the last time the Westminster establishment agreed on all the same talking points. Each and every one of the above arguments – which will be spewed out of Manchester all week and dutifully repeated across the comment pages and studio sofas – is wrong.

Let’s work backwards through those charges. A spectre is indeed haunting the Tory party, but it is the spectre of moderate social democracy. Labour went into the last election on a manifesto of a bigger public sector, higher taxes and a promise to borrow more to invest. That is capitalism, of a kind that Angela Merkel would know.

Play Video 0:54 Protester tells Jacob Rees-Mogg he's 'despicable' - video

If the Tories believe their problem lies with the young, they must have missed the YouGov finding that they are losing voters under 47 years old. Or the one about how they lag behind Labour among every segment of the workforce – unemployed, part-time, full-time. In the election in June, the Tories only came out ahead among retirees.

The most important point, though, is this. It suits May to make out that a vote cast against her is a vote against capitalism, but the truth is modern-day Conservative leaders aren’t much cop at capitalism. Whether David Cameron or May, George Osborne or Hammond, they pursue policies almost guaranteed to make Britain’s market economy perform less well. The result is that we have suffered the most miserable recovery in well over a century, that the average British worker is still earning less than he or she was before the banking crash of 2008, and that the deficit reduction strategy that voters were assured would end in 2015 is now set to drag on until around 2025.

The Britain that voted for Brexit last year, or which is signing petitions in defence of Uber this autumn, has not lurched towards socialism. Rather, voters have been failed by the form of capitalism offered to them – one that cannot provide them with wage rises, secure homes or decent care for their loved ones. If they are now rejecting that malfunctioning economic system and the party that is its chief vehicle, their response is not ideological but entirely pragmatic.

You can pin a large part of the blame on the complete fiasco of austerity. That’s one reason why I’m confident Osborne will go down as the worst chancellor in postwar Britain, whatever fees he currently commands on the after-dinner circuit. But austerity grew out of the belief system that the Tories inherited from Margaret Thatcher. She championed the notion that assets should be handed to individuals rather than entrusted to society, and that the only tolerable benefit was a means-tested benefit. What we are witnessing now is the slow collapse of that system.

Thatcher's capitalism has ended up breaking every one of its big promises

For most of the 20th century, the Conservative party knew the best way to keep voters true to capitalism was to allow them some share in its dividends. It was in the name of a “property-owning democracy” that Thatcher privatised the utilities and encouraged council tenants to buy their own homes. The effect of her regime, as largely accepted by her successors Tony Blair and Cameron, was to concentrate wealth and assets in fewer hands.

Look at the results. Thatcher’s capitalism has ended up breaking every one of its big promises. Home ownership in England has slumped to its lowest point since the mid-1980s. Share ownership among individuals is below where it was when Thatcher entered No 10. Thatcherism was meant to help those who wanted to get on in life; the Resolution Foundation now forecasts that those aged between 15 and 35 could earn less over their entire lifetimes than their parents.

Yet even four decades on, the Conservatives remain entirely in Thatcher’s shadow. She could have written Cameron’s austerity programme, with its belief that the public sector crowds out the private sector. The same goes for Osborne’s plans to privatise whatever assets he possibly could – even down to old student loans. And she would certainly have recognised May’s stupid gambit this week that the best way to deal with a housing bubble is to underwrite it with more public money. All of this is Thatcherism redux, only this time the Treasury cupboard is bare, the ideas are old and the fireworks have gone damp.

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The big problem with Thatcherite economics is that it’s a trick you can only pull off once. To keep doing it 40 years on is to face an audience that has seen too many failures. Too many regions left for dead, even while the City of London booms. Too many promises of creating national champions, when now Beijing funds France to build Britons a nuclear power station. Too many failures of the private sector, from the operators of our trains to the boardrooms of our banks. All those 1980s jibes against supposedly incompetent public servants ring hollow in an era when Britons know the 11 most terrifying words in the English language are: “I’m from a Virgin call centre and I’m here to help.”

The result, as the political economist Will Davies observes, is that the Conservatives have ended up defending capital rather than capitalism. They have championed finance and pretended it stands for all business. They have preached book-keeping when they needed to wield economics. The Tories can obviously reverse out of their current ideological dead end. But that would require them first to recognise Thatcherism as being a dead end, which they show little sign of doing. Yet it most certainly is. What Thatcher once said of socialism goes for her own brand of economics: you eventually run out of taxpayer money to give to the rich and public assets to privatise.

• Aditya Chakrabortty is a Guardian columnist