Ex-liberal's case for capitalism; The Spirit of Democratic Capitalism, by Michael Novak. New York: Simon & Schuster. 360 pp. $17.50.

According to one popular definition, a ''neoconservative'' is a liberal who's been mugged by reality. But for author Michael Novak, a leading spokesman for today's neoconservative movement, it's a label that doesn't fit. Once a left-leaning liberal who wrote speeches for George McGovern, Mr. Novak contends he wasn't ''mugged,'' but rather that he turned gradually more conservative. The change was caused in part by disillusionment with his socialist ideals. But more significantly, he ''discovered spiritual resources in democratic capitalism I had long repressed in myself,'' he writes.

Novak, a resident scholar in philosophy, religion, and public policy at the American Enterprise Institute in Washington, focuses here on those spiritual resources. He defines democratic capitalism as a dynamic three-part system, consisting of ''a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a mead-libsystem of cultural institutions moved by ideals of liberty and justice for all.''

His defense of the system is keyed to the high premium he puts on individual freedom. Western democracies have a clear edge over more restrictive forms of government, he says, because of their respect for the integrity of the human spirit. Novak is less than convincing when he argues that the poverty of the developing world simply reflects the regions' inferior socioeconomic systems; he never addresses the charge that the industrial countries have extracted resources and profits from the third world without promoting long-term development. Yet this book offers a worthwhile and interesting case for democratic capitalism, so often maligned today.