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A moral economy is one that is based on the goodness and fairness of the people participating in it. Such an economy generally only works with small groups of people who know each other fairly well and who aren't likely to try to cheat each other.

Moral economies tend to be "scratch my back and I'll scratch yours" type of arrangements. They prevent free rider problems by leveraging the willingness of people to help others and generally follow the rules.

Joseph Heath's The Efficient Society provides an entire chapter on the moral economy, and he does a much better job of explaining it than I can.

"Moral economy" is the term commonly applied to the economic system of a culture in which, through the application of social influence, economic actors are pressured to conduct their production and transactions in accordance with community norms, even where doing so might not be in the actor's immediate self-interest or might cause marked economic inefficiencies. Put into practice, this ethic might include such behaviors as the shaming of retailers who sell certain staple goods at prices above traditionally established prices, even when these goods are in short supply or high demand, or a refusal to patronize a newly founded business which competes with preexisting local institutions, even where this competition might be expected to result in lower consumer prices.

Though even now, few actors could be said to completely ignore cultural influences in conducting economic activity, and moral economy-influenced communitarian and populist sentiments enjoy a significant degree of popularity, the "golden age of moral economy" is typically located in the past, under feudal or other premodern socioeconomic systems. In the absence of the extensive transportation and mercantile infrastructure, most economic activity under such systems was conducted locally, by actors who could be expected to know and engage in non-economic social activities with each other, creating a strong incentive for adherence to social norms. Meanwhile, the relative stasis of the agrarian economic base of such systems, in which most actors could reasonably expect to live much as their parents, grandparents, and more distant ancestors had, further enhanced the legitimacy of tradition as a moral guide.

As the standard narrative goes, the aforementioned infrastructure was eventually developed and markets expanded, however, rendering economic actors less bound by social ties and sanctions, at least relative to the motivation of profit. From this shift arose modern market ideology, promulgated by the expanding merchant class, which presented wealth maximization as an acceptable, or even morally compelling, basis for action. This decline of a moral economy framework is usually seen as a negative development, with its eulogizers mourning the loss of checks on "vulgar" and "unfeeling" self-interest. In defense of the impersonal market economy, it stands to be noted that while a socially-influenced market ethic might claim to insert morality into the economic system, this "morality" tended less to resemble an abstract system of ethics than the self-interest of the community which enforced it, often to the detriment of politically weak community members or outsiders.

For example, note the behavior of merchants in the post-Civil War American south towards ex-slave sharecroppers, selling goods on credit at inflated prices and excessive interest rates, thus maintaining the existing economic structure in which African-Americans served European-Americans as a servile laborer class. This was understood to be the proper arrangement of society, and the understanding that merchants could and should act in this manner, and that it would be improper for competitors to undercut these merchants by offering the sharecroppers more favorable terms, was as much an example of the moral economy in action as anything else. It should not come as a surprise that when in the early 1900s chain grocery stores and their ethic of impersonal profit maximization began to challenge independent local merchants, black Americans were generally the first to embrace the shift and the last to mourn the old, "moral" retailers.

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