The essence of Socialism is this: All the means of production are in the exclusive control of the organized community. This and this alone is Socialism. All other definitions are misleading.

A Socialist community, which did not include the whole of mankind, would have no reason to remain isolated from the rest of the world. It is true, that it might be disquieting for the rulers of such a state that foreign ideas would come over the frontiers with foreign products. They might fear for the permanence of their system, if their subjects were able to compare their position with that of foreigners who were not citizens of a socialist community. But these are political considerations, and do not apply if the foreign states are also socialistic.

Such considerations indicate the principles on which a socialist community would have to base its commercial policy. In so far as it aspired to let its actions be guided purely by economic considerations it would have to aim at securing just what under complete freedom of trade would be secured by the unrestricted play of economic forces.

No one can regard what his neighbour does as a matter of mere indifference. Everyone is interested in raising the productivity of labour by the widest division of labour possible under given circumstances. I too am injured if some people maintain a state of economic self-sufficiency: for, if they were to relax their isolation, the division of labour could be made even more comprehensive. If the means of production are in the hands of relatively inefficient agents, the damage is universal.

If trade were completely free, production would only take place under the most suitable conditions. Raw materials would be produced in those parts which, taking everything into account, would yield the highest product. Manufacture would be localized where the transport charges, including those necessary to place the commodities in the hands of the ultimate consumer, were at a minimum. As labour settles around the centres of production, the geographical distribution of population would necessarily adapt itself to the natural conditions of production.

Under Capitalism, capital and labour move until marginal utilities are everywhere equal. Equilibrium is attained when the marginal productivity of all capital and labour is the same.