Part II - Institutions

Summary

Unlike the laws of Production, those of Distribution are partly of human institution: since the manner in which wealth is distributed in any given society, depends on the statutes or usages therein obtaining. But though governments or nations have the power of deciding what institutions shall exist, they cannot arbitrarily determine how those institutions shall work. The conditions on which the power they possess over the distribution of wealth is dependent, and the manner in which the distribution is effected by the various modes of conduct which society may think fit to adopt, are as much a subject for scientific enquiry as any of the physical laws of nature.

John Stuart Mill, Principles of Political Economy (1848)

John Stuart Mill was well aware of the contingent nature of economic institutions. Although governments could legislate to promote, regulate or restrict trade and exchange, their capacity to direct economic activity was constrained ‘by the various modes of conduct which society may think fit to adopt’. Legislators could enact statutes, but they had control of only a small number of indirect levers with which to influence economic behaviour. Military might – which Britain possessed in abundance throughout Victoria's reign – supported imperial ambition, both economic and political, but had little impact on domestic economic governance. The tax system did not come into contact with the vast majority of domestic economic activity, focusing instead on a limited range of customs, excise and property imposts.