Doug - actually free software gets financed in a number of surprising ways, even by capitalists.
The biggest contributors invariably sell their services as experts of the software they help create. They consult, advise, train people to use it.
Many well known open source contributors are employed by companies who actually let them spend company time working on open source projects. Amazing, but true! This is largely down to the fact these software engineers want it this way - it's negotiated by them i.e. it's down to their personal commitment to open source software.
Many companies also actually make money from open source software by actually selling it, or adding their own modifications and selling them. There's not to stop other people taking the same software and selling it themselves, though. (note: the term 'free software' doesn't relate to its price, but free access to the source code and any modifications).
A few companies create software, and then open source it. This is symbiotic - they get contributions from open source developers to improve the software, but then sell services relating to the software to other companies. (Zope is an excellent example of this).
Finally, open source software receives numerous small contributions from coders who are also using the software for the their own purposes. They might fix a bug, or add a small feature, for their own purpose, but then it may get incorporated into the next release for everybody elses benefit.
I never ceased to be staggered by the sheer quantity and quality of open source software, and I have used a hell of a lot of it. I have always got excellent help and support from maintainers/programmers of the software.
Chuck - what was that book, and the author?