In this class we saw a diagram of mercantilism. Mercantilism is really just progressive corporatism. The diagram showed the circular flow of the system. The factor markets and goods markets had individuals in them. They sent their stuff to the firms for payments. The firms then sold other stuff to the individuals for payments. Everything is interconnected between the transfer of stuff and money. An equation of income expenditures was Income = (consumer goods - taxes) + Investments + government + net exports.
Mercantilism put huge restraints on individuals. Things could only be made certain ways. There was a limit in production amounts, wages, trade options. There were several government monopolies. The theories of mercantilism said 1. all trade is "zero sum" and someone gets rich while someone else gets poor 2. money is the source of wealth and 3. the king should manage trade aggressively by restricting imports and promoting exports.
The source of wealth was discussed by French Physiocrats, Mercantilists, and Scottish Moral Philosophers. The physiocrats under Quesnay said that through agriculture you get rich and that is the source of economic growth. We were the change between consumers and producers. The mercantilists said that the source of wealth is the king's bank account or the amount of gold in the country. They looked for a positive trade balance. The moral philosophers thought the source of wealth was commerce as people will act virtuously and with morals.
David Hume rejected mercantilism and that economics stands alone externally and internally. Mercantilism misses the price specie flow mechanism and the law of one price. This said that prices rise and fall until they're back where they started.
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