Longer ago than I like to think back I wrote a book Capitalism and the Permissive Society the title of which puzzled some people, as I was in favour of both. The last edition appeared in 1988 under the more anodyne title A Restatement of Economic Liberalism but the main part was unaltered. Like most books on political economy it was highly imperfect. But its faults were those of omission rather than commission, and looking back on it, nearly two and a half decades later, there is almost nothing I wish to withdraw.

The central attribute of capitalism in normal usage is private ownership of the means of production, distribution and exchange. It is compatible with the existence of a substantial, but not overwhelming, public sector and with state carrying out certain functions which are required if the market is to transmit people's preference effectively. This includes, apart from the conventional law and order, anti-monopoly laws and measures to deal with environmental spillovers which prevent people's preferences being properly reflected in the market; and fiscal measures to influence the distribution of income and wealth.

There is no need to pretend that market rewards reflect personal merit. As Lord Melbourne said in another context "There is no damn'd merit about it". Redistribution is best carried out by a (preferably unified) tax and social security system and not by interfering with prices and wages. How far should redistribution go? Up to the point where it ceases to benefit both the poor and the mass of the population. Jealousy and envy of the better off may be part of human nature. But it is no part of the business of either moral philosophy or political economy to pander to them. Nor should any defender of capitalism rely on the shabby argument that excessive redistribution will lead to an emigration of talent. This surrenders the moral high ground and depends on the division of the world by frontiers and the difficulties of international cooperation.

Successful capitalism is also compatible - and in my view requires - the use of monetary and fiscal policy to moderate fluctuations in economic activity and to prevent long periods of demand deficiency causing needless unemployment as well of course as to prevent runaway inflation. If some far-out US Republican wishes to assert that these activities are not true capitalism, too bad. Definitions are a matter of convenience. Lord Keynes, who was the great pioneer of what is unhappily called demand management, often asserted that his purpose was to save capitalism, not to undermine it.

My central case for competitive capitalism is that it is that it promotes personal and political freedom. A businessman, outside the financial sector, will prosper by providing what adults wish to have - even if that is pop records, candyfloss or nude shows rather than what our supposed elders and betters think is good for them. Above all the individual is free to use his abilities in line with his or her own choices. He or she can concentrate on personal pleasure, social service at home, the relief of poverty abroad or any combination of these and numerous other activities.

Early in the 20th century Ludwig von Mises, an Austrian economist, challenged socialists to say how to determine what should be produced and by what methods in the absence of capitalist markets. The most interesting response came from "market socialists" who asserted that state-owned enterprises could mimic capitalist ones in using market prices to guide their activities. Indeed they could, with a known set of products, a known technology and known and static public tastes. The matter is wholly different when it comes to inventing new products or discovering low cost methods. And who should be the managers and who the managed and how is a limited amount of investment funds to be allocated to everyone with a bright idea? Above all there is the political consideration enunciated by John Stuart Mill

"If the roads, the railways, the banks, the insurance offices, the great joint stock companies were all of them branches of government ... If the employees of all these enterprises ... looked to the government for every rise in life, not all the freedom of the press and popular constitution of the legislature would make this or any other country free otherwise than in name."

There are some attractions in worker-owned enterprises (to which Mill was sympathetic) and there have been some successes here - for instance the Mondragon group in Spain; and I write as a satisfied partner of the John Lewis Partnership. But there is simply no enough evidence or analysis to support a politically ordained whole transfer of enterprises to such entities, as distinct from removing obstacles to their formation.

The Conservative MP, Jesse Norman, has listed some of the numerous ways in which capitalism can be corrupted (Conservative Free Markets and the Case for Real Capitalism) by cronyism. These include old-fashioned monopoly; Russian-type capitalism symbolised by oligarchs who have gained control over natural resources; khaki capitalism in states dominated by the military and narco-capitalism based on dealings in illicit drugs. The last is however aggravated by over-intrusive Western legislation akin to US prohibition in the 1920s. There is however no need to say that these are not "real capitalism" or to claim a Conservative patent on the genuine variety. Norman needs to reread the philosopher Karl Popper's demolition of the view that words have essential meanings and that knowledge is to be gained by probing them.

The real shortcoming of my book was that like many others I did not discuss the financial sector and how its activities could undermine the capitalist order - even if there were no overt inflation or deflation of consumer prices. Any working market order requires there to be some way of marrying savings with the desire to borrow; a market for investible funds and some way of insuring against the vicissitudes of life as well, of course, as a better way of keeping ready cash than storing it under the mattress. But none of this justifies the threat posed by masses of invented money to institution after institution and country after country. Capitalism is a means to freedom and prosperity and not an end in itself. Improvement here may justify not merely international regulation, but the retention for quite a long time in public ownership of banks and other institutions which have had to rescued by government.