Topic > Importance of Mercantilism - 1423

The greatest critic of the mercantilist system was the Scottish philosopher, politician and classical economist David Hume who in 1752 pointed out an intrinsic flaw in the doctrine proposed by mercantilism, later called the species flow mechanism. The idea is that the trade surplus, the ultimate goal of mercantilist policies, and the accumulation of gold and silver were unsustainable in the long run. It has supported the trade surplus, sets forces that tend to reverse. According to him. If one country has a surplus with another, the influx of gold and silver would increase the supply of the national economy and culminate in inflation: there would be too much money for too few goods, the system would function at full capacity and the money would not come saved but would continue to circulate. In the other country, however, the flight of gold and silver causes a drop in prices. The deficit country becomes increasingly competitive, shifting the trade balance. That said, Hume argued that a free flow of gold would lead to a precarious equilibrium