# VSM Analysis: The Mercantile System as a Cybernetic Structure

## Chapter Summary

Adam Smith's analysis of the mercantile system reveals it as a comprehensive but flawed economic policy framework that attempts to control and direct national economic activity through government intervention. The system operates on the fundamental principle that national wealth consists in the accumulation of precious metals, achieved through maintaining a favourable balance of trade via export promotion and import restriction. Smith demonstrates how this framework creates artificial monopolies, imposes extraordinary restraints on trade, and sacrifices consumer interests to producer interests. The mercantile system functions as a top-down policy structure (S5) that attempts to manage internal operations (S3) through navigation acts, bounties, duties, and prohibitions, while monitoring external conditions through balance of trade metrics (S4). However, Smith shows that this artificial cybernetic structure consistently produces outcomes opposite to its intended purposes, creating smuggling networks (S2) and preventing the natural development of economic activity. The analysis reveals how government attempts to introduce commercial order paradoxically produce economic disorder, and how the system's focus on producer interests undermines the fundamental principle that consumption, not production, is the ultimate end of all economic activity.

## Entities Extracted

- **mercantile system**: A system of political economy based on the principle that national wealth and power are best served by increasing exports and collecting precious metals in return. It operates through government regulations that encourage exportation and discourage importation, particularly of manufactured goods, while maintaining colonial monopolies and navigation restrictions.
- **balance of trade**: The difference between the value of a nation's exports and imports, considered by mercantilists as the primary measure of national economic health. A favourable