Before Adam Smith wrote a word about markets, he spent a career arguing that morality is not imposed from outside. It is a sentiment, built from the ordinary human capacity to imagine what someone else is feeling.
Economics today largely treats ethics as external to the market: a constraint applied afterward through regulation, or a personal preference that has no bearing on how exchange itself works. Smith did not build his economics on that separation. Seventeen years before The Wealth of Nations, he published The Theory of Moral Sentiments (1759), a full account of where moral judgment comes from, and he never abandoned or contradicted it in his later economic work.
Smith’s argument was that moral judgment starts with sympathy: the act of imaginatively placing ourselves in another person’s situation and feeling, at reduced intensity, what they feel. Through repeated social interaction, a person internalises what Smith called the impartial spectator, an imagined observer whose approval or disapproval is used to judge one’s own conduct from outside one’s own interest. This is how a person learns prudence (care for oneself), justice (not harming others), and beneficence (actively helping others), the three virtues Smith treated as the structure of a functioning moral character. Smith also wrote in explicitly theological terms at points, referring to the “Author of nature” and to providence as shaping this moral capacity, though how much weight to give that language is itself a live question among historians of his thought, some read it as a genuine commitment, others as the conventional idiom of eighteenth-century moral philosophy.
Whether this moral theory is a strict precondition for Smith’s economics, something markets cannot function without, or a separate but compatible account of ethics, is itself contested among Smith scholars. Amartya Sen reads Smith as holding that robust markets depend on a broader ethical foundation and institutional support, not on self-interest alone. Other scholars are more cautious, noting that Smith’s economic arguments in The Wealth of Nations are not explicitly derived from the virtues of prudence, justice, and sympathy laid out in his ethics. What is not contested is that Smith wrote both books, saw no contradiction between them, and revised The Theory of Moral Sentiments as late as 1790, the year of his death, well after The Wealth of Nations had made him famous. The scholarly debate over whether the two books pull in different directions is sometimes called “the Adam Smith Problem,” and most contemporary historians of his thought treat it as resolved in favour of continuity rather than contradiction.
Source: Smith, Adam, The Theory of Moral Sentiments, 1759 (six editions to 1790). Secondary, peer-reviewed: Sen, Amartya, “Adam Smith and the Contemporary World,” Erasmus Journal for Philosophy and Economics, 3(1), 2010, pp. 50-67.