Markets, institutions, and morality

Critics of the market economy are convinced that markets will inevitably destroy the morality of individual market participants and thus contribute to major economic and social crises. Even Wilhelm Röpke, a great champion of economic liberalism, wrote repeatedly about this danger. This paper tries to retrieve the mechanisms that usually prevent the moral degeneration of the market economy and might rather contribute to some moral dividend in market exchange. As recognized already in Adam Smith's concept of the "impartial spectator" free economic exchange may go well along with private institutions in which individual morality is formed, controlled and adapted to new circumstances. Mainstream economic theory that has for a long time neglected these connections seems to rediscover them and to import the necessary concepts from other social sciences. This may also contribute to a better understanding of what constitutes a Social Market Economy.