"Statism"

If state power is "innately bad", then why not have any government at all?  Why not abolish all government completely, and its sister institutions of law, property, and currency?  Why not reduce everything to a state of darwinian struggle to survive? Would that not fulfill the gist of capitalism, to create a society where the strongest live and the weak perish? 

The answer is thus: Those in the current system use government and its institutions to protect themselves from the world, they need property, they need law, they need to have some semblance of society to sleep at night, they are all too afraid of a world where individual struggle is the only constant, where they can know that anything can be taken for any reason, that quarter will not be shown to them, and that no one has any outside force compelling them to aid their fellow man.

Those who ask for a reduction of state power, without its abolition, are cowards.

>>1
"If state power is "innately bad", then why not have any government at all?"

The idea behind libertarianism and a reduction *BUT NOT* an elimination of state power is that you sacrifice a small amount of liberty to ensure the safeguard of all the others.  The idea is to sacrifice as little as is necessary to keep your other liberties safe from the common forms of attack. 

-Attacks by foreign governments (military)
-Attacks by criminals (court system)
-Can't think of anything else, but you get what I'm saying.

As you can see, the proper function of government is thus to protect liberty, and to sort out disputes between individuals in the fairest manner possible so that they can continue to go about their lives, being relatively free. 

"Why not abolish all government completely, and its sister institutions of law, property, and currency?"

Because we need government to defend our most essential liberties from intrusion and invasion by other governments.  If we don't have some degree of organized society, we will then be overrun by enemy governments and have no freedoms.  Thus, we sacrifice as small an amount of liberty as is possible, so that the government can exist - but only to protect our liberties from the threats I mentioned above, such as governments, and criminals.

"Why not reduce everything to a state of darwinian struggle to survive?"

...

"Would that not fulfill the gist of capitalism, to create a society where the strongest live and the weak perish?"

That isn't the gist of capitalism.  Capitalism is an economic idea based around the ideas of individual rights.  Granted, libertarianism and minimal government (but not anarchy) is not pure-capitalism, but it is likely as close as we can reasonably get to it while still more-or-less defending our basic human rights from the various types of invasions and attacks mentioned above.  The problem is that without a government to defend our liberties, they wouldn't exist for very long before a foreign government came in and took them away.  Since we want to keep them, we sacrifice the smallest degree of property rights possible to provide taxes so that a small, but adequate government can exist to defend our freedoms from foreign and domestic threats.  This compromise ensures that the rest of our freedoms will be there for the future, while still leaving us more or less 'free'.  Thus, to conclude, the functions of a good government are to defend life, liberty, and property.

"Those who ask for a reduction of state power, without its abolition, are cowards."

No we aren't.  We are acting in a practical manner to increase our freedom without jeopardizing its safety.  It is the most sensible ground possible possible between Anarchy and Statism.