This article is a good summary of the moral theory behind Adam Smith's economics. Essentially,
"This analysis might seem cynical, suggesting that apathy, not compassion, lies in the heart of man. But this is not what Smith means. He is emphasizing that humans are limited in the ability to sympathize - or empathize - in today's language. Smith was telling us that as much as we might feel sorry for unfortunate people halfway around the world, our genuine sympathy might not reach that far"