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. Case of the London County Council's steamboats.

Two forms which the industrial state under socialism might conceivably take: The official directors of industry might be either an autocratic bureaucracy, or they might else be subject to elected politicians representing the knowledge and opinions prevalent among the majority.

Estimate of the results which would arise in the former case. Illustrations from actual bureaucratic enterprise.

Estimate of the results which would arise in the latter case. The state, as representing the average opinion of the masses, brought to bear on scientific industrial enterprise. Illustrations.

The state as sole printer and publisher. State capitalism would destroy the machinery of industrial progress just as it would destroy the machinery by which thought and knowledge develop.

But behind the question of whether socialism could provide ability with the conditions or the machinery requisite for its exercise is the question of whether it could provide it with any adequate stimulus.

CHAPTER VIII

THE ULTIMATE DIFFICULTY.
SPECULATIVE ATTEMPTS TO MINIMISE IT

Mr. Sidney Webb, and most modern socialists of the higher kind, recognise that this problem of motive underlies all others.

They approach it indirectly by sociological arguments borrowed from other philosophers, and directly by a psychology peculiar to themselves.

The sociological arguments by which socialists seek to minimise the claims of the able man.

These founded on a specific confusion of thought, which vitiated the evolutionary sociology of that second half of the nineteenth century. Illustrations from Herbert Spencer, Macaulay, Mr. Kidd, and recent socialists.

The confusion in question a confusion between speculative truth and practical.

The individual importance of the able man, untouched by the speculative conclusions of the sociological evolutionists, as may be seen by the examples adduced in a contrary sense by Herbert Spencer. This is partially perceived by Spencer himself. Illustrations from his works.

Ludicrous attempts, on the part of socialistic writers, to apply the speculative generalisations of sociology to the practical position of individual men.

The climax of absurdity reached by Mr. Sidney