"The arguments underlying Marx’s historical prophecy are invalid. His ingenious attempt to draw prophetic conclusions from observations of contemporary economic tendencies failed. The reason for this failure docs not lie in any insufficiency of the empirical basis of the argument. Marx’s sociological and economic analyses of contemporary society may have been somewhat one-sided, but in spite of their bias, they were excellent in so far as they were descriptive. The reason for his failure as a prophet lies entirely in the poverty of historicism as such, in the simple fact that even if we observe to-day what appears to be a historical tendency or trend, we cannot know whether it will have the same appearance to-morrow."
Popper considered that Marx saw many things in the right light, including the suffering of people under "unrestrained capitalism". That part of Popper's analysis is highly defective. See Bill Hutt on the myth of the factory system.
Popper considered that the most robust parts of the Marxist prophecy concerned increasing productivity and the potentially disastrous consequences of the trade cycle (boom and bust). He did not claim to know enough to improve on Marx’s analysis and he was left with the need for a theory to explain why the institution of the free market does not prevent depressions
He was perplexed by the question "Why it is that such a very efficient instrument for equalizing supply and demand, does not suffice to prevent depressions, i.e. overproduction or underconsumption. In other words, we should have to show that the buying and selling on the market produces, as one of the unwanted social repercussions of our actions, the trade cycle.”
The answer is that people buying and selling in a free market will will tend to adjust prices and production to correct mistakes (over or under-production, or prices that are set too high or too low) but the process of adjustment is undermined by interventions that limit the movement of prices or protect people and firms from the consequences of their mistakes. Just as an example, when the US market was operating relatively freely in the early 1920s, the 1920/21 bust cleared within six to twelve months with prices and employment back to the pre-bust figures. In contrast the Crash of 1929 and the Great Depression of the 1930 demonstrated the result of the heavy interference with markets under both Republican and Democrat administrations.
"Roughly speaking, Marx shared the belief of the progressive industrialist, of the bourgeois of his time: the belief in a law of progress. But this naive historicist optimism is no less superstitious than a pessimistic historicism like that of Plato and Spengler. And it is a very bad outfit for a prophet, since it must bridle historical imagination."
Popper paid tribute to the religous dedication of the Marxists in their mission to change the world in the time of their "deepest misery and degredation" but that view was based on a false reading of this historical record and it resulted in some of the least credible comments that Popper ever made on
"A faith like the progressivist optimism of the nineteenth century can be a powerful political force; it can help to bring about what it has predicted [as] a consequence of its religious character and a proof of the force of the religious faith which it has been able to inspire in men. And in Marxism more particularly the religious element is unmistakable. In the hour of their deepest misery and degradation, Marx’s prophecy gave the workers an inspiring belief in their mission, and in the great future which their movement was to prepare for the whole of mankind. Looking back at the course of events from 1864 to 1930, I think that but for the somewhat accidental fact that Marx discouraged research in social technology, European affairs might possibly have developed, under the influence of this prophetic religion, towards a socialism of a non-collectivist type. A thorough preparation for social engineering, for planning for freedom, on the part of the Russian Marxists as well as those in Central Europe, might possibly have led to an unmistakable success, convincing to all friends of the open society. But this would not have been a corroboration of a scientific prophecy. It would have been the result of a religious movement—the result of the faith in humanitarianism, combined with a critical use of our reason for the purpose of changing the world."
But, as Popper pointed out in practically the same breath, the prophetic and pseudo-scientific character of Marxism dominated any tendency to institutional analysis and so the Marxists had no idea what was required to improve the situation wherever they came to power or managed to influence policy. The first result of any serious institutional analysis of the causes of productivity, wealth and poverty would have exposed the fundamentally flaws in the Marxist account of industrialisation and economic history in general
"The prophetic element in Marx’s creed was dominant in the minds of his followers. It swept everything else aside, banishing the power of cool and critical judgement and destroying the belief that by the use of reason we may change the world."