In 1759 Smith published his first work, The Theory of Moral Sentiments. Didactic, exhortative, and analytic by turns, it lays the psychological foundation on which The Wealth of Nations was later to be built. In it Smith described the principles of “human nature,” which, together with Hume and the other leading philosophers of his time, he took as a universal and unchanging datum from which social institutions, as well as social behaviour, could be deduced.

One question in particular interested Smith in The Theory of Moral Sentiments. This was a problem that had attracted Smith’s teacher Hutcheson and a number of Scottish philosophers before him. The question was the source of the ability to form moral judgments, including judgments on one’s own behaviour, in the face of the seemingly overriding passions for self-preservation and self-interest. Smith’s answer, at considerable length, is the presence within each person of an “inner man” who plays the role of the “impartial spectator,” approving or condemning one’s own and others’ actions with a voice impossible to disregard. (The theory may sound less naive if the question is reformulated to ask how instinctual drives are socialized through the superego.)

The thesis of the impartial spectator, however, conceals a more important aspect of the book. Smith saw humans as creatures driven by passions and at the same time self-regulated by their ability to reason and—no less important—by their capacity for sympathy. This duality serves both to pit individuals against one another and to provide them with the rational and moral faculties to create institutions by which the internecine struggle can be mitigated and even turned to the common good. He wrote in his Moral Sentiments the famous observation that he was to repeat later in The Wealth of Nations: that the self-seeking rich are often “led by an invisible hand…without knowing it, without intending it, [to] advance the interest of the society.”