What is the central theme in The Palace Thief?

The central theme in Ethan Canin’s A Palace Thief is that of moral corruption, and he builds it around two major characters: Mr. Hundert and his student, Sedgewick Bell. The author shows the extent certain individuals go in employing unscrupulous techniques to selfishly obtain what they want. Even though Sedgewick is unruly, he seems to be under pressure from his authoritative father to excel. It is out of Hundert’s empathy and intimidation by Sedgewick's powerful father that a cycle of cheating and moral entrapment begins. Sedgewick cheats his way to good grades in tests, and at one point, does so with the aid of Mr. Hundert who is hoodwinked by his impressive ‘improvement’.
The epitome of Sedgewick’s cheating is perhaps during the ‘Mr. Julius Caesar’ competition. He boldly peeks at answers before a filled auditorium. Unfortunately, Mr. Hundert, out to safeguard his job, heeds to the headmaster’s advise to ignore the incident. Many years later, Hundert presides over a rematch of the competition only this time, Sedgewick is a powerful entrepreneur and the audience full of high ranking academics and corporate luminaries. History repeats itself; Sedgewick cheats, and Hundert fails the moral test by not calling him out.

The title story of The Palace Thief, Ethan Canin’s collection of four novellas, explores several themes. Mr. Hundert, the protagonist, is a teacher of ancient history at an elite Virginia private school. The story’s key theme centers around his attempts to live by his principles and subsequent guilt over his moral failings.
The key relationship of the story that demonstrates is that of Mr. Hundert and his student Sedgewick Bell, the son of a prominent U.S. senator. Hundert reflects on his career, haunted by his dealings with this pupil. A theme this relationship illustrates is the role of a teacher. Hundert sees himself as not just an academic leader but also a moral guide, seeking to mold the characters of the young men he teaches. This role is questioned by Bell’s father who challenges Hundert, saying, “You will not mold him. I will mold him. You will merely teach him” (164).
Hundert’s relationship with his problem student also magnifies the theme of comprising principles in the face of power. The teacher recounts a series of moral failings with Sedgewick Bell: raising his grade undeservedly, overlooking his cheating in an academic contest, and again failing to report the man’s cheating years later in another academic contest. Hundert regrets that he has lost all opportunity to mold his student’s moral character because of his own moral corruption. 

The central theme in The Palace Thief is moral corruption.  The theme is furthered by the characters of both Sedgewick Bell and Hundert.
Sedgewick Bell is morally corrupt from the beginning.  As a student in Hundert's class, Sedgewick Bell continually lies and cheats.  He is never punished (or even reprimanded) for this moral corruption even when Sedgewick Bell wins the Tournament of Roman History through cheating.  Of course, Sedgewick Bell grows up to be a corrupt businessman.  As the head of a large corporation now, Sedgewick Bell asks for yet another Tournament of Roman History and wins again by cheating.  Sedgewick Bell is never exposed as the liar and cheater he truly is.
Hundert's moral corruption appears through his cowardice at not exposing Sedgewick Bell.  Hundert, Sedgewick Bell's original teacher, knows exactly what kind of a liar and a cheater Sedgewick Bell is.  Hundert is told by his superiors to keep Sedgewick Bell's corruption quiet due to his father's position as a senator.  Hundert could have exposed Sedgewick Bell in either tournament; however, Hundert does not.  His cowardice costs Hundert his self-respect as well as the position of headmaster.

Hundert was once manipulated by a powerful senator into making allowances for his ne’er-do well son, whom Hundert knows to have cheated and whose dishonesty he has never exposed.

The only exit from moral corruption can be seen in Hundert's retirement where he warns others of corruption within the system.