“Price specie-flow mechanism” – Natural law which base from the assumption of an equilibrium
- the mercantilists promote surplus of exports to accumulate specie which is self-defeating.
- Why? Because if more specie were available, prices would go up and imports would increase. But to pay for the imports, money would be shipped abroad, leaving poverty and bankruptcy behind. Hence, the government should prevent an excess of money.
- Hume, like Cantillon, accepted John Locke’s quantity theory of money (the price level is determined by the quantity of money available, given the velocity and quantity of output), analysed the mechanism of international equilibrium that would operate without government intervention.
According to “Of the Balance of Trade”, equilibrium in international trade has other factor apart from the supply of money; that is exchange rates between nations’ currencies
If it is free for fluctuate, the trade will get to balance.
Hume also argued against MeInternational trade, Hume believes, is a positive sum game, one in whircantilist that trading states are not rival in his work “Of the Jealousy of Trade (1758)”. ch the payoffs sum to a positive number, unlike the zero-sum of the mercantilists.
Hume did not believe either that the richer country will gain from international trade because provisions and labour become more expensive in the wealthy nations leave the poorer countries in a more competitive status.