In typical self-deprecating style, Damon Courtney writes to ask me about my sloppy editing of his capitalizations, as follows:
What are the rules on capitalization when someone refers to someone else not by their name but by some other name? Such as:
"Yes, My Dear."
Somewhere in my mind I want to capitalize those cases, but I'm not sure if that's right. You didn't note them in your copyedit, but there are some places I didn't do that, and you didn't note those either. So, either it doesn't matter, or I'm doing it wrong one way or the other.
Notice that it doesn't occur to Damon that I might have missed an error or (even worse) an inconsistency. Leaving aside the matter of undue deference to the editor, my reply is below. Check out my awesome UK punctuation mojo in the quotations. If there is clamour, I might blog about that later.
It doesn't really matter all that much, because it's almost impossible to infer a consistent set of rules for capitalization in English. If you go back to the 1930s, you'll find that anything that can defensibly be called a proper noun gets capitalized, and anything else isn't. The classic example is:
"Did you hear that? He called her 'darling'."
"Since it's what they call one-another, we all call them Darling and Dearest."
The idea is that in the first, we are just referring to a term of endearment, whereas in the second, we are declaring common assent to naming. Today, capitalization of titles, especially "honorifics" (commonly assented but not always formal or legal titles) is very varied. I'm reminded of the Buddhist schoolteacher who remarked "Many call me master but none call me Master.".
In your second example, you should capitalize in either of two cases: "My Dear" is the only form of address used by the speaker to his interlocutor, OR "My Dear" is being used in a special way in this single instance, for instance as sarcasm.
Bear in mind that the strict 1930's rule takes no account of the relationship between the people, only of the logic, hence:
"Yes, O my master."
The former is a direct address, hence Master is proper. The latter is a description of the relationship hence master is just an adjective. Here's another case that is at once revealing and confusing:
"We must tell the King at once!"
"What King?" / "Which king?"
This is logical, but looks daft on the page. Sometimes how it looks on the page is the only solution.
This conclusion is an example of The New Model in action. Clarity in transmission from writer to reader is paramount, and visual confusion caused by an impression of inconsistency becomes noise, and distracts the reader from the effect that the writer intended.