Reconciling personal interest with the impartial spectator

Although the Wealth of Nations is believed to be, in a large part, opposed to the argument of Smith in the Theory of Moral sentiment, I believe that this presumable rupture is mainly the result of an apparent incompatibility between the notions of Sympathy and the Impartial spectator with a society founded upon the personal interest. It is also the result of the current state of affairs. i.e. all the social problems and the inequalities that arise with a capitalist system like the one in the US.

I can see two different ways in which we can reconcile the arguments of the two books.

One could claim that the moral society that Smith theorizes in the TMS is the ideal state of economic liberalism. Although personal interest is the first motive of any economic activity, the relationship between parties of any economic activity requires some of the cardinal virtues (Prudence, Justice, Temperance and Courage, these were all discussed in the Republic).
For example, the goal of an economic transaction is protecting one’s personal interest by accumulating capital and then investing it to make future profits. By trying to make profits in the long run, men need to display a certain degree of prudence. In this example, it is the economic activity itself that needs to be approved by the impartial spectator).

Another example would be justice which is an important condition of economic activity since without it, profits are lost because of a deficiency in the economic system and not the lack of labor. However, although people need a just system to engage in any economic activity, being just themselves goes against the nature of self-interest. From this contradiction comes the need of a regulating government as per Smith. (In relation to question 6).

These two examples show us that the functioning of the market does not necessarily go against the development of virtue but also that the market does not necessarily corrupt virtues.

The second possible way to reconcile personal interest with virtue lies in the definition of the invisible hand of Adam Smith, which is a notion according to which, men, through economic activity, benefit society despite having no prior intention of doing so. The personal interest of the person is the only motor of their economic activity.

This is one of the instances where Adam Smith used the concept in WoN: “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.”

The positive externalities including the development of virtue could then be thought off as an unintentional result of economic activity and the invisible hand plays the role of the impartial spectator.