When Michael Novak was studying to be a priest, capitalism was a dirty word. Novak was brought up to believe that the poor would be better served by "democratic socialism." Hostile to the big corporations and what they were doing to "the poor, the hungry and the oppressed," he found it easier to identify with "labor" rather than "capital."

But Novak has moved a long way from his dreamy-eyed socialism. He read books, pursued his college and graduate studies as a layman, dabbled in journalism, writing of other sorts, "saved economics . . . until last", and began to teach. In his personal evolution, he came to believe that socialism is actually "incoherent." But more than that--his main point is that in practice, democracy is compatible only with a market economy: thus, only under "democratic capitalism" can there be individual liberty and justice.

Novak insists that his gradual transformation to staunch defender of capitalism--especially of the multinational corporations--does not prove that he is "a liberal who has been mugged by reality." (I for one would never have suggested this!) Rather, he says that his socialist idealism simply faded away in the face of incontrovertible evidence that capitalism works and socialism doesn't.

Now a leading guru at the American Enterprise Institute, Novak writes that "while bastard forms of capitalism do seem able for a time to endure without democracy, the natural logic of capitalism leads to democracy. For economic liberties without political liberties are inherently unstable. Citizens economically free soon demand political freedoms."

On this point, Novak buries in a footnote Robert Lekachman's observation that "capitalism, embarrassingly, flourishes in places like Chile, Brazil, South Korea, Taiwan, the Philippines, Indonesia, and other bastions of repression." (Shall we add Argentina to make Ambassador Jeane Kirkpatrick happy?)

But Novak skips lightly over this impediment to his thesis. He makes no pretense that capitalist democracies produce strict equality of opportunity: "No fair and free system can possibly guarantee equal outcomes." He argues, rather, that under capitalism "persons are free to choose their own interests . . . and to . . . 'find themselves' " But as any black or Chicano can tell Novak, some are more free to choose than others.

For all of that, who is to challenge Novak's thesis that democracy is the best form of government? With all its warts, the U.S. is the land of opportunity: the proof is that peoples of all kinds are still banging at the door, trying to get in, as did most of our ancestors.

But what bothers me about Novak's book is the rather smug assertion that only capitalism can provide political liberty. There are "mixed" economies in the world--those, for example, that blend some elements of socialism with capitalism--where citizens can claim a degree of political liberty at least equal with ours.

And, as has been observed before, man does not live by GNP alone. Something must be said for the physical quality of life. There have been studies--those by the Overseas Development Council come to mind--that show many socialist and even authoritarian governments able to match stride with democratic governments in health, education, literacy, and longevity.

But Novak is now wedded to capitalism and the free market. He is impatient with the "hostility" shown by intellectuals, including socialist intellectuals, "to the very conception of the marketplace." Such intellectuals believe that if they "were in command . . . people would soon purchase what is good for them and learn their place."

Novak misses the point. Those who are skeptical of total reliance on the marketplace believe, simply, that it works, at times, to the advantage of those who control it or manipulate it. In other words, there are those who raise the question whether there is, in fact, any such thing as a purely free market--or pure capitalism, for that matter--anywhere.

Novak undertakes to explain Adam Smith's "invisible hand" allusion as a reference to "the order (which) emerges from an aggregate of decisions made by individuals which may turn out, surprisingly, to be more rational than any order imposed by rational planners."

The major fallacy here is Novak's implicit assumption that the marketplace is guided by the aggregate of decisions of individuals who have equal power. That's dream-world, not real-world stuff. Bunker Hunt had a lot more to do with the run-up in silver prices a few years ago than the aggregate of decisions by everybody else.

Finally, Novak devotes at least a third of his book to what he calls the "theology of economics." He argues that the values of democratic capitalism are inextricably interlinked with Judaic tradition and the Christian gospels, and that democratic capitalism "welcome(s) judgment" under the Kingdom of God. I don't know how to cope with that. I don't even know what it is supposed to mean. I hope it doesn't mean that Novak would find no place for agnostics or atheists in his favorite form of government.