Contrary to much common opinion, John Rawls has never been an advocate of welfare-state capitalism; or perhaps of any form of capitalism, given his definitions. Rather, as a matter of ideal theory, the only two kinds of modern societies that he believes to be compatible with his two principles of justice are a property-owning democracy – which he sometimes calls “private-property democracy” (PL 328, 364; JF 159) – and a liberal socialist regime that has extensive markets. He contrasts these three types of societies when he speaks of “[Marx’s] criticisms of capitalism as a social system, criticisms that might seem. . . to apply as well to property-owning democracy, or equally to liberal socialism” (JF 139).

It is necessary “to bring out the distinction between a property-owning democracy, which realizes all the main political values expressed by the two principles of justice, and a capitalist welfare state, which does not. We think of such a democracy as an alternative to capitalism” (JF 135–136). We must distinguish “between property-owning democracy and a capitalist welfare state [since] … the latter conflicts with justice as fairness” (JF 8 n.7). “This leaves [only] … property owning democracy and liberal socialism [as types of modern societies whose] ideal descriptions include arrangements designed to satisfy the two principles of justice” (JF 138).