Capitalism works because having money gives the people an incentive to work harder and fit within the "system" of the government. This is why it's generally seen as a more favorable system than communism/socialism.
I'm not sure how effective an incentive system it is once your basic needs are met though. Lots of people don't seem to have ambitions for which large amounts of money are a desirable aspect. Not that they'd turn it down if you offered it to them, mind, but they don't work to advance themselves either.
If all needs are fulfilled regardless, then we have moved from scarcity economy to abundance economy, in which case capitalism breaks down (and that's the basis for communism/socialism actually). Note that the main importance of capitalism is a way to efficiently distribute resources, in an abundance economy, we don't have to do that efficient either.
It also breaks down on public goods. The idea of capitalism is based on rational self interest, but rational self interest for individuals doesn't inherently lead to rational self interest for larger groups. Wealth also allows people to distort the political process away from representation of the interests of the majority.
Society loses out, in terms of lower productivity, higher crime, increased prison costs, pollution, etc.