I think Hayek may have been too kind in suggesting that Mill’s understanding was blocked by “the classical labour theory of value – or any other belief in a causal determination of value by any particular antecedent event”. If Mill could understand that a progressive income tax is “a tax on industry and economy” it beats me how he could think it was appropriate to begin his discussion of distribution by implying that mankind can individually or collectively distribute “things” as they like without affecting the quantity of “things” produced.

Hayek and Mill are on opposite sides of the marginalist revolution divide — a revolution which Hayek drove home all the way into the economics of production. This is what separated Hayek from Mill. Hayek sees market coordination as forward coordinated and ordered according to the logic of marginal valuation and steered by changing relative prices. Mill looks at things in terms of backward measured physical units, e.g. a mass of labor, a mass of land, and a mass of “capital stuff”, all of which can be thought of as being “distributed” across the community according to commonly and backwardly measurable units of “stuff”, without regard to forward looking individual valuers adjusting their evaluations of the significance of every unique item of production or consumption withing the ever changing context of constantly chaning relative prices.

For Hayek, individual things have significance only within the larger context of the always changing and forward evaluated network of economic relations — Mill conceives of such things as labor and land as having a significance outside of any changing or forward evaluated web of economic relations. And because of this, Mill imagines that things can be moved and re-arranged in a manner that retains their current significance without any regard for their place in the forward arranged network of price and quantity arrangements.