(I got this linked to in a PM, so I apologize if this is out of synch with the rest of the thread)
It is a difficult question, Mill, one that history toys with. Almost mocking.
A pure political or economic system inevitably leads to excess and ruin; history proves repeatedly, however, that every nation and people is subject to rises and falls, birth, stagnation, and death, not just those that adhere to a pure ideological structure. The question at hand is what mix of socioeconomic systems is best for the long-term perpetuation of our nation-state and way of life.
Pure socialism does not work; it is predicated upon the notion that men will work for the greater good of all, that they will work whether or not they get paid in proportion to their efforts. Men perform the minimum effort required for their own subsistence and perhaps (!) that of their family. Most do not work for long periods of time for some overreaching ideology, and in fact reach a point where the quantity, quality or both of their work declines to the point where the entire system becomes untenable.
This assumption is naive, and the converse is a basic tenet of capitalism; each man works solely for his own individual gain. This idea, taken to its logical extreme, also leads to ruin. When men do not incur the full cost of their actions, those hidden costs become allocated among the entire population, and over time this leads to a market failure. This can be combated in obvious cases, perhaps where a company has a factory that egregiously pollutes the area and sells the majority of their products in that same area - over time, those residents will boycott or pressure the factory to enact stricter standards, and the factory will eventually either tighten their standards and return to the good graces of the community, or it will move.
Globalisation, however, makes this type of cost allocation near impossible. The economic damage perpetuated by Nike in China is never felt by the majority of Americans, no matter how hard activists may strive; we can see the same effect with Wal-Mart, whose effects are usually not felt until long after the damage has been done.
There is a middle ground - regulation so that men are made to bear, as is reasonably possible, the full costs of their actions. This is at first glance a compromise between socialism and capitalism, because one assumes that because a person is bearing the social cost of their actions they are somehow altruistic; this is false. The driving force is still self-interest, however there is the additional facet of compliance with government regulations, the creation of which are driven (or should be driven) by the will of the people.
Capitalism combined with a republican democracy can work, as long as the two systems are kept ethical and transparent; with a large, decentralized federal system this is prone to manipulation, as we have seen with the power corporate media can wield in the political process, and the only solution I can think of is for the educated citizenry to take it upon themselves to use the power of the vote to enforce their interests as close as is possible to the intent of the Founding Fathers.
It is frustrating and impractical in its simplicity, but most useful principles are.
Cheers!
Nate