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It was 250 years ago this month, that the Scottish economist and philosopher Adam Smith produced his seminal work, The Wealth of Nations, which laid the foundation of modern economic theory. This came just a few months before the United States gained its independence.

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His work can be interpreted in many ways depending on any one person’s ideology, but in essence he stated that a nation’s prosperity comes from productive labour, free markets and specialisation – not from hoarding Gold or excess government control.  His “Invisible Hand” demonstrated that when individuals pursued their own self interest in competitive markets, society unintentionally benefitted. This is very much what Lord Moynihan states in his book, Return to Growth – the solution being less tax, less regulation and less government. Not that there should be no government, but that it should create the framework to allow individuals to excel. Great nations were never impoverished by private enterprise, but they sometimes are by public prodigality.

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Increasing productivity was his central theme – how much output each worker can produce. Today the AI revolution should reduce the time taken to carry out certain tasks. This supports Smith’s argument that higher productivity creates greater national wealth. The real question today is can AI generate new sectors and industries and competitive dynamism to keep labour broadly valuable. Employing people today is more complex than at any time in modern history when one takes into account the post-Covid work culture, AI disruption and government-imposed employee rights and increased taxation. To maintain Smith’s philosophy, we need to find a way to increase productivity and competition whilst ensuring people are not left economically stranded by rapid change.

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The wealth management industry has a part to play. In primary markets it supplies companies with capital to expand, innovate and grow; in secondary markets it provides liquidity without which fewer founders would take entrepreneurial risk, which means fewer people employed.

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As a postscript and in light of the current conflict in the Middle East, Adam Smith believed that the State had a legitimate role in defence. “Defence is of much more importance than opulence.”  Defence may be economically costly, but it is necessary.

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Comments from James Scott-Hopkins, Founder of EXE Capital Management.

The views are those of the author only.

The above does not constitute a recommendation to buy specific funds or assets and advice should be sought from your financial advisor as to the appropriateness of this in your portfolio. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.‍

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