It's only fair to include James's response to Wells.

'It is art that makes life, makes interest, makes importance, for our consideration and application of those things, and I know of no substitute whatever for the force and beauty of the process.'

I haven't read enough of either author to have an opinion on their relative literary merit, but James is right about that, at the very least.

I’ve read a fair amount of both, and I think that James is definitely the superior prose stylist. Wells has an interest in social structures that informs a great deal of his plots (especially (The Time Machine). They’re in many ways incomparable if only because their literary projects have very different aims.

I bet that appreciating what they’re really talking about would require digging into a broader debate about the best approaches to, and attitude toward the writing of, good literature, which was a decades-long topic among a bunch of major figures in literature in the late 19th and early 20th century.

I mean, there are probably always such debates going on to some degree, but this is a specific one that saw James and some fellows on a side opposed to a bunch of other authors. I only know about it because I happen to have read part of a book of criticism of EM Forster earlier this year, and I gather that debate was kinda the major topic among that set for a long while (Forster was on the opposite side of it from James)