Quite well. Which is why so many for-profit corporations release F/OSS.
> I'd be all for writing and contributing to free software if I could make a living off it.
People do -- by selling their expertise with the software, or selling solutions in which the software is an enabling component.
One obvious way is to sell Free Software. The market has raced to the bottom recently, but a while ago a lot of GNU development was funded by Free Software sales.
Compare this to proprietary software, which can't operate in a capitalistic society. It relies on government interference in the software market to create an artificial scarcity (ie. copyright).
Er, what?
> It relies on government interference in the software market to create an artificial scarcity (ie. copyright).
Capitalistic society relies on government involvement in the market to create property rights; among the property rights that were features of the systems for which the term "capitalism" was coined is copyright.
So, to say that proprietary software cannot exist because it relies on government for the system of property rights that underlie it is a gross misunderstanding of "capitalism".
Define "capitalistic."
If you mean free market there are all kinds of ways it can live. If you mean investor-backed corporations, then the answer is dual-licensing.