Many faithful Lutherans have argued that Adam was saved by grace through faith just as we are before the fall. While I commend this attempt to exalt the grace of God through out all of redemptive history; I think this notion of grace before the fall is mistaken.
If one admits that Adam was in need of grace before the fall, it admits the Roman Catholic doctrine that original righteousness was a super added gift. The fall then becomes merely the loss of a gift rather than a positive fall into sin. Man was righteous because he was a created being by a good God. To say that his righteousness needs to be added is to say that God's creation within itself is imperfect thus is in need of something else. This is to adopt a Manichean view of creation. Thus is is wrong to say that grace was given to Adam for righteousness.
This also obscures the legal definition of grace which is necessary for the gospel. Grace is the unmerited favor of God on behalf of the sinner. It is not something which is infused into the soul. Thus grace is God's disposition of love toward the unworthy sinner. This makes grace into either the mere kindness of God or something which changes a man inwardly (which it does but only as an effect of legal justification).
If grace is necessary for unfallen man then there is inherently something wrong with the creation. Salvation then becomes ontological. There is something wrong with man as creation and thus he needs to be fixed. This is the root of all mystical theology as well as the existential theology of Tillich and Bultmann. Traces of this idea are also found in Barth. However, creation as creation is good! It does not need to be subsumed into God, become one with God or become it's own God. It is good because it bears the marks of a Holy God. It is good as distinct from the creator because it recognizes the Creators superiority and otherness and submits itself to him.
Finally, to deny that Adam could merit anything in the garden is to deny that the second Adam could merit anything in his place. We can never speak of merit in the postlapsarian state; however, this does not negate merit in the garden. Adam could do good works and obtain blessing. His breaking of God's commandments would cause death and exile from the garden. This is essential to hold to because it means Christ as the second Adam could obtain an even greater blessing for us through obedience.
The objections I have heard from this are threefold; first, it is claimed that this makes God unloving and just like the Gods of any other pagan creation story. Secondly, it is said that this idea is wrong because it is found in the Reformed Confessions. Thirdly, I have heard that there is no basis in historical Lutheran writing for saying that Adam could gain merit in the garden.
Objection 1: God is certainly not unloving toward Adam and Eve in the garden. He is loving and kind toward them. He does not put them directly into a situation of chaos and warfare as do other gods. He has created them in righteousness that they are able to perfectly obey and love their creator. The differences between this and the God of the Enuma Elish should be obvious. We can certainly speak of Yahweh being good to Adam, and loving. We can even say that Yahweh gave man blessings he was by no means obligated to. This however, cannot be called grace because grace always refers to the kind disposition of God toward sinful man.
Objection 2: Yes, this does parallel the reformed idea of the Covenant of works in the garden. However, just because it is reformed does not mean that it is wrong. Lutherans for example have often used Calvin's three-fold distinction of the offices of Christ. Secondly, we do not need to call it a covenant of works as do the reformed and adopt their entire system. It may be proper to call it a covenant as in Hosea 6:7, though it is not necessary to do so. Covenant in Biblical terms usually refers to the Abrahamic, Mosaic, Davidic and New Covenant. In many ways, the reformed definition of the covenant of works was to defend the Lutheran idea of the active obedience of Christ. It is worthy to note that the Calvinists with greater respect for Lutheranism and the law-gospel distinction have fought for this doctrine, while those who mix law and gospel have argued against it.
Objection 3: Lutheran theology does not speak as explicitly in these terms; however, I believe the doctrine of Christ's active obedience as the second Adam necessitates it. Adam must have been able to gain merit so that Christ as the second Adam could gain what Adam did not. Also, Luther himself believed that it was possible to speak of merit in the prelapsarian state, "Yes, if we were devoid of sin, as was Adam before the fall, we would have no need of Christ; we might come before God in our own merits." (Complete Sermons of Martin Luther Volume III.2 page 285).
For Luther, the reason we cannot merit salvation is not because there is something wrong with our being creaturely, but because in Adam all have died. Thus, the law is impossible to fulfill.
Reach to Christ, the only perfect law-keeper who obeyed the law Adam disobeyed on our behalf.