Except for the correction of a few verbal errors which have escaped my notice in the American edition, and which obscure the meaning of perhaps four or five sentences, for the introduction of a few additional notes, and for the translation of dollars and cents into pounds and shillings, the English and the American editions are the same.
W.H.M.
_January, 1908._ CONTENTS CHAPTER I THE HISTORICAL BEGINNING OF SOCIALISM AS AN OSTENSIBLY SCIENTIFIC THEORY Socialism an unrealised theory.

In order to discuss it, it must be defined.
Being of no general interest except as a nucleus of some general movement, we must identify it as a theory which has united large numbers of men in a common demand for change.
As the definite theoretical nucleus of a party or movement, socialism dates from the middle of the nineteenth century, when it was erected into a formal system by Karl Marx.
We must begin our examination of it by taking it in this, its earliest, systematic form.
CHAPTER II THE THEORY OF MARX AND THE EARLIER SOCIALISTS SUMMARISED The doctrine of Marx that all wealth is produced by labour.
His recognition that the possibilities of distribution rest on the facts of production.
His theory of labour as the sole producer of wealth avowedly derived from Ricardo's theory of value.
His theory of capital as consisting of implements of production, which are embodiments of past labour, and his theory of modern capitalism as representing nothing but a gradual abstraction by a wholly unproductive class, of these implements from the men who made them, and who alone contribute anything to their present productive use.
His theory that wages could never rise, but must, under capitalism, sink all over the world to the amount which would just keep the labourers from starvation, when, driven by necessity, they will rebel, and, repossessing themselves of their own implements, will be rich forever afterwards by using them for their own benefit.
CHAPTER III THE ROOT ERROR OF THE MARXIAN THEORY.
ITS OMISSION OF DIRECTIVE ABILITY.
ABILITY AND LABOUR DEFINED The theory of Marx analysed.

It is true as applied to primitive communities, where the amount of wealth produced is very small, but it utterly fails to account for the increased wealth of the modern world.
Labour, as Marx conceived of it, can indeed increase in productivity in two ways, but to a small degree only, neither of which explains the vast increase of wealth during the past hundred and fifty years.
The cause of this is the development of a class which, not labouring itself, concentrates exceptional knowledge and energy on the task of directing the labour of others, as an author does when, by means of his manuscript, he directs the labour of compositors.
Formal definition of the parts played respectively by the faculties of the labouring and those of the directing classes.
CHAPTER IV THE ERRORS OF MARX, CONTINUED.
CAPITAL AS THE IMPLEMENT OF ABILITY Two kinds of human effort being thus involved in modern production, it is necessary for all purposes of intelligible discussion to distinguish them by different names.
The word "labour" being appropriated by common custom to the manual task-work of the majority, some other technical word must be found to designate the directive faculties as applied to productive industry.

The word here chosen, in default of a better, is "ability." Ability, then, being the faculty which directs labour, by what means does it give effect to its directions?
It gives effect to its directions by means of its control of capital, in the form of wage-capital.
Ability, using wage-capital as its implement of direction, gives rise to fixed capital, in the form of the elaborate implements of modern production, which are the material embodiments of the knowledge, ingenuity, and energy of the highest minds.
CHAPTER V REPUDIATION OF MARX BY MODERN SOCIALISTS.
THEIR RECOGNITION OF DIRECTIVE ABILITY The more educated socialists of to-day, when the matter is put plainly before them, admit that the argument of the preceding chapters is correct, and repudiate the doctrine of Marx that "labour" is the sole producer.
Examples of this admission on the part of American socialists.
The socialism of Marx, however, still remains the socialism of the more ignorant classes, and also of the popular agitator.
It is, moreover, still used as an instrument of agitation by many who personally repudiate it.

The case of Mr.Hillquit.
The doctrine of Marx, therefore, still requires exposure.
Further, it is necessary to understand this earlier form of socialistic theory in order to understand the later.
CHAPTER VI REPUDIATION OF MARX BY MODERN SOCIALISTS, CONTINUED.
THEIR RECOGNITION OF CAPITAL AS THE IMPLEMENT OF DIRECTIVE ABILITY.
THEIR NEW POSITION, AND THEIR NEW THEORETICAL DIFFICULTIES The more educated socialists of to-day, besides virtually accepting the argument of the preceding chapters with regard to labour, virtually accept the argument set forth in them with regard to capital.
Mr.Sidney Webb, for example, recognises it as an implement of direction, the only alternative to which is a system of legal coercion.
Other socialists advocate the continued use of wage-capital as the implement of direction, but they imagine that the situation would be radically changed by making the "state" the sole capitalist.
But the "state," as some of them are beginning to realise, would be merely the private men of ability--the existing employers--turned into state officials, and deprived of most of their present inducements to exert themselves.
A socialistic state theoretically could always command labour, for labour can be exacted by force; but the exercise of ability must be voluntary, and can only be secured by a system of adequate rewards and inducements.
Two problems with which modern socialism is confronted: How would it test its able men so as to select the best of them for places of power?
What rewards could it offer them which would induce them systematically to develop, and be willing to exercise, their exceptional faculties?
CHAPTER VII PROXIMATE DIFFICULTIES.
ABLE MEN AS A CORPORATION OF STATE OFFICIALS How are the men fittest for posts of industrial power to be selected from the less fit?
This problem solved automatically by the existing system of private and separate capitals.
The fusion of all private capitals into a single state capital would make this solution impossible, and would provide no other.
The only machinery by which the more efficient directors of labour could be discriminated from the less efficient would be broken.