The American novelist Jonathan Dee, in a recent issue of Harper’s Magazine, wrote disparagingly on the art of literary grave-robbing, on the way more and more contemporary writers were appropriating real-life characters and the actual events of the past for fictional ends. To Dee, a righteous and rigorous reader, there was something ethically troubling about the way these writers were glibly fiddling with history—redeeming time, making the dead live, distorting the truth—in order to enhance the lustre of their own invented narratives. “Creating a character out of words and making him or her as vivid and memorable as a real person might be perhaps the hardest of the fundamental tricks a novelist has to perform,” he wrote. “Simply adopting or impersonating an already interesting real-life character—Lee Harvey Oswald, JP Morgan, Amelia Earhart—cannot be considered as substantial an achievement as creating a character who enters the reader’s consciousness as a total unknown.”

There are no truths, said Nietzsche, only interpretations, and in modish psycho-historical novels, it seems, the past itself has become a kind of fiction, inherently unstable and open to endless reinterpretation. The trend for history-as-fiction is not confined to the US, where writers such as Norman Mailer, Don DeLillo, Truman Capote and Joyce Carol Oates have long been adept at exploiting the slippage between interpretation and fact, between the known world of the historical past and the imaginatively unknown of the present and near future. Pat Barker’s Regeneration, a trilogy of novels set during the First World War and featuring actual figures such as the army psychologist WHR Rivers and the poet Siegfried Sassoon; the late Penelope Fitzgerald’s The Blue Flower, a novel about Friedrich von Hardenberg, better known as the Romantic poet Novalis, and his obsessive love for a 12-year-old girl called Sophie von Kuhn; Giles Foden’s The Last King of Scotland, a prize-winning first novel about the last days of Idi Amin; Muriel Sparks’s Aiding and Abetting, a delightfully eccentric recasting of the Lord Lucan story—these are just some of the more successful recent examples of writing in which the fiction, as Novalis once put it, “arises out of the shortcomings of history”. The trouble is, novelists such as Fitzgerald and Barker have spawned countless inferior emulators, whose motives, one senses, are deeply cynical; and one knows this because they use the pathos of the already known—the emotional charge of historical crises such as trench warfare and the Holocaust—in an attempt to impose on a text a spurious moral validation that does not emerge organically. This trend is indeed ethically troubling.

So what lies behind this evasion of the defining particulars of our time, this retreat into history? Well, in this country, at least, there has long been a powerful loss of confidence in the fictional possibilities of England, particularly beyond the metropolis. One struggles to think of more than a handful of novelists who bring urgent news of our contemporary condition, in the way that Dickens must once have done; novelists who consistently stretch and mangle form in seeking to bring to the novel an authentic modern idiom; novelists who seek and find new ways of writing about the modern world. With the exception of VS Naipaul, JG Ballard, AS Byatt (most of the double-initial crowd, in fact), one struggles to think of novelists who have truly made modernity their urgent subject, in quite the same way that Philip Roth and DeLillo have made postwar American society—with its consumer frenzies and killing sprees, its money-chatter and information buzz—their defining subject.

Reading Roth’s recent trilogy of novels—American Pastoral, I Married a Communist and The Human Stain—and Sabbath’s Theater before that, you sense that here is a writer, even at the age of 67, who burns to invent, who is writing against extinction. (In a recent New Yorker profile, the now reclusive Roth spoke of how, because of a bad back, he works standing up at a lectern, writing all day until he reaches the point of exhaustion.) As a result, his fiction has, humanly, a peculiar contemporary resonance, an existential frenzy of the kind that has largely disappeared from the British novel.

But hold on. Perhaps one way of writing about the modern world, as Byatt reminds us, is to write about the present through the aspect of the past, so that the novel becomes a kind of palimpsest, in which successive generations fail quite to erase the influence of those who have gone before, and all time exists as an eternal present. Certainly, Byatt, in this powerful and stimulating book of essays, is eager to defend the integrity and freedom of the novelist to write about whatever he or she chooses without programmatically being restrained or bullied: “A writer can rebel in various ways against the novel of sensibility, or the duty (often imposed by literary journalists) to report on, to criticise, contemporary actuality.”

If our ideas of the past are formed by ideas of the present, part of the process of understanding history, she seems to say, includes re-imagining it. Byatt herself is a fabulist, an exuberant spinner of multiple narratives. Her novels are rich in allusion, in layers of information, in historical loops, echoes and repetitions. Not surprisingly, she writes most enthusiastically here about the great compendium storytelling collections—The Arabian Nights,. Boccaccio’s Decameron, Ovid’s Metamorphoses. The hero of this book is really Scheherazade, telling her one thousand and one stories as she struggles to deter death. And it is the freedom to tell stories that Byatt most cherishes: “Narration is as much part of human nature as breath and the circulation of the blood. Modernist literature tried to do away with storytelling, which it thought was vulgar, replacing it with flashbacks, epiphanies, streams of consciousness. But storytelling is intrinsic to biological time, which we cannot escape.”

If there is a weakness in the book, it is that Byatt never really answers the question as to why so many writers are in retreat from the contemporary. Instead, she offers a series of smart close readings of recent novels—by Graham Swift, Julian Barnes, Pat Barker, Lawrence Norfolk and others—in which, eschewing theory and using extensive direct quotations, she attempts to show, rather than explain, how different novelists animate the historical past.

Byatt is right to emphasise, against the modernist obsession with consciousness and interiority, the human hunger for narrative and storytelling. But more crucially, I think, what underscores our obsession with history-as-fiction is a loss of confidence in the possibility of objective historical truth, in the failure of the academy robustly to argue against a prevailing relativism which insists that meaning is intrinsically unstable, that all events and texts are subject to multiple and conflicting interpretations, and that there is no such thing as value-free history, given that all historical narratives are no more than partial ideological constructions, a kind of fiction. And it is the confusion created by this state of affairs—together with the blunt truth that peace, prosperity and a benign political culture are the enemies of radical creativity—that has led so many of our best writers to look, in their search for inspiration, not to contemporary Britain’s clogged motorways and bustling shopping m alls of limitless mediocrity, but to the past.

As for Byatt, On Histories and Stories reminds us definitively that she is not only one of our best living novelists, but one of our most astute readers, too. We are lucky to have her.