James begins by discussing the conditions under which he wrote The Portrait of a Lady (begun in Florence in 1879 and continued in Venice) and under which he published the book (simultaneously published in serial form in the American magazine The Atlantic Monthly and the British journal Macmillan's Magazine). He admits to being distracted during the writing of the book, noting that the land of Italy offers "the artist a questionable aid to concentration," (v) especially given the fact that the book does not take place in Italy. He concludes though that his "wasted effort of attention" was "strangely fertilizing" (vi). (He notes the contradiction that the book profited from his own distracted effort.)
James found the inspiration for the book ("the germ of his idea") in the "sense of a single character," (vi) by which he means Isabel Archer, rather than in a conception of what the plot of the novel would be. He recalls that Ivan Turgenieff, a Russian novelist and short story writer, had a similar method for beginning a book. This method is employed insofar as the main character is subjected to certain conditions, exposed to certain people and situations, and from there the novel can develop. This is what Turgenieff called being "disponsible" -- subject to the chances of existence (vii). James then goes on to relate the author's "sense of life" which he has for a particular character to the morality of the novel. He then puzzles over how his own authorial sense of the individual was already so vivid from the very beginning. This is puzzling because he thinks that a sense of life only comes from being engaged in the conditions of life that the author provides to the character, the character that comes to him as unattached. He likens the character's placement in the author's mind to an old vintage good hidden in the backroom of an antiques store -- it is valuable again only once an amateur shopper in the store attributes merit to it "afresh" (xi).
James wonders about the value of Isabel Archer as the main character of the story: he understands the problem of the novel to be -- "What process of logical accretion was this slight 'personality' … to find itself endowed with the high attributes of a Subject?" (xi.) How could he justify Isabel Archer as significant enough to be the main character, the "cornerstone" of The Portrait of a Lady? He realizes that his trick was to make the "frail vessel" (a phrase taken from George Eliot, xiii) character of Isabel Archer important for others, who hint at her yet-to-be realized possibilities. Yet, he adds to this method by centering the narrative through the consciousness of Isabel Archer. Thus it would seem that Isabel Archer's value as a Subject comes from her significance for others in a social world, and it is added to even further through her own interpretation of that significance.
Overall, James evaluates The Portrait of a Lady as having a certain "'architectural' competence" (xiv). That is, it was one of the few novels that he was mostly satisfied with when he sat down to write the New York Edition prefaces in the early 1900s; the form of the novel is adequate for the subject. The one flaw in the book though is Henrietta Stackpole, who he believes does not organically fit into the rest of the story.
The Preface was written as part of a 26-Volume Collection of all James' works from 1906-1907, to be put out in a special edition in New York. This New York Edition printing of James' work was unsuccessful financially during James' time, but the Prefaces have had lasting significance in literary criticism. They are seen as one of the first American theoretical treatises on the novel (see for example, Hale, "General Introduction). In them, James deals with problems of the novelist's relation to realism, point of view, the morality of the novel, the aesthetic form of the novel, the techniques of his own fiction, the circumstances of publication, the flaws he sees in his own novels, and more.
In this particular preface, James often loses his own train of thought, reflecting the circumstances under which he claims the novel was written (in a distracted state). However, as we learn from this preface, such a state of distraction can prove strangely "profitable." James seems to be talking about a metaphorical profit (there was plenty of worthy content in the novel), but he is also being strangely literal: he is playing on the fact that The Portrait of a Lady was one of James' most financially profitable novels. There is a sustained metaphor here between the novel itself and financial growth and profit. He similarly uses this metaphor to describe his main character, Isabel Archer, as an object in the "back-shop of the mind" (x) of the author. She has accumulated value through time, by being placed within this setting, and can now be put on display. This is an odd way to describe a person, because it is an objectification of Isabel, making her sound like a commodity to be sold. At the same time, James is claiming that this very display of the character's value is evidence of the author's "moral" sense. By placing very vaguely the question of morality in here, he is purposefully bringing out the contradictory idea that a fictional character can be exploited, put on display like a commodity, as evidence of the exploiter's (the author's) morality.
Another important image that James discusses here is the idea that there is a "house of fiction" out of which many characters look onto the same scene. This is a famous image that describes his use of point of view. Characters all have different views of the same scene - some seeing "black" where others see "white," and so forth. Every person has an "impression distinct from every other" (ix). He likens the "pierced apertures" through which each character sees to the "literary form" (x). In other words, the novel allows us to see as others see, and to further see from many different perspectives, how one scene may look very different for other people. This is dramatized in the circumstances of The Portrait of a Lady, where Isabel's friends believe she is being exploited, but Isabel does not see this. Some may critique Isabel for being an empty character with no substance, but James here is cleverly painting a view of the novel in which this is her very value. A person is valuable to James insofar as they can make a lot out of what they see: they can see the many possibilities and values of other people and situations.