Adam Smith’s Wealth of Nations came out 248 years ago. Which should be, we think, long enough for people, even those who rule us, to grasp the ideas therein. Apparently not, a quarter of a millennium is not enough time.
There is a suggestion floating around that ISAs should be limited to purchases of British investments. This is a truly stupid idea. Sam Bowman, lately of here, points out that US stock market returns have been 10x UK ones over the past decade.
But to that two and a half century old wisdom, Adam Smith himself:
But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.
What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
All of economics is either footnotes to Smith or wrong. This Brit ISA idea is therefore wrong,
Clearly, it’s a folly and a presumption.
We can also add that footnote. It is possible to go with that invisible hand and agree that domestic employment of said capital benefits the domestic economy - at cost to the returns to the capital being employed. That’s what that home bias against the higher profits of the foreign trade means. If you were some sort of nationalist and socialist you might therefore think that government should force domestic capital to be invested domestically.
But that fails at the fence of it not being “British” capital which is being invested. Nor is it the government’s capital that is being invested. It is the capital of individual Britons being invested and the decision upon the investment is righteously for those individual Britons. What do property rights mean if you cannot decide upon the disposal of your property?
The nett effect of a Brit ISA would be to make individual Britons poorer as well as being a folly and a presumption. Or, as we’ve said, a truly stupid idea.