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Chapter 2: The Market As A Social Institution
The discipline of economics is aimed at understanding and explaining how markets work in modern capitalist economies – for instance, how prices are determined, the probable impact of specific kinds of investment, or the factors that influence people to save or spend.
So what does sociology have to contribute to the study of markets that goes beyond what economics can tell us?
To answer this question, we need to go back briefly to eighteenth-century England and the beginnings of modern economics, which at that time was called ‘political economy.
The most famous of the early political economists was Adam Smith, who in his book, The Wealth of Nations, attempted to understand the market economy that was just emerging at that time.
Smith argued that the market economy is made up of a series of individual exchanges or transactions, which automatically create a functioning and ordered system.
This happens even though none of the individuals involved in the millions of transactions had intended to create a system.
Each person looks only to her or his own self-interest, but in the pursuit of this self-interest, the interests of all – or of society – also seem to be looked after.
In this sense, there seems to be some sort of an unseen force at work that converts what is good for each individual into what is good for society.
This unseen force was called ‘the invisible hand’ by Adam Smith. Thus, Smith argued that the capitalist economy is driven by individual self-interest, and works best when individual buyers and sellers make rational decisions that serve their own interests.
Smith used the idea of the ‘invisible hand’ to argue that society overall benefits when individuals pursue their own self-interest in the market because it stimulates the economy and creates more wealth.
For this reason, Smith supported the idea of a ‘free market’, that is, a market free from all kinds of regulation whether by the state or otherwise. This economic philosophy was also given the name laissez-faire, a French phrase that means ‘leave alone’ or ‘let it be’.
Modern economics developed from the ideas of early thinkers such as Adam Smith and is based on the idea that the economy can be studied as a separate part of society that operates according to its own laws, leaving out the larger social or political context in which markets operate.
In contrast to this approach, sociologists have attempted to develop an alternative way of studying economic institutions and processes within the larger social framework.
Sociologists view markets as social institutions that are constructed in culturally specific ways. For example, markets are often controlled or organized by particular social groups or classes and have specific connections to other institutions, social processes, and structures.
Sociologists often express this idea by saying that economies are socially ‘embedded’. This is illustrated by two examples, one of a weekly tribal haat, and the other of a ‘traditional business community and its trading networks in colonial India.
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NCERT Solutions Class 12 Sociology Chapter 4: The Market As A Social Institution
Ans. According to Adam Smith, every person looks for his own self-interest and in pursuit of this in-tum works for the self-interest of all . In this sense, there seems to be an unseen force at work that converts what is good for each individual into what is good for society. This unseen force was called the “invisible hand’
2. How does a sociological perspective on markets differ from an economic one?
Ans. Adam Smith and other thinkers developed the ideas of modem economics. It is based on the idea that the economy can be studied as a separate part of society that operates according to its own laws, leaving out the larger social or political context in which the market functions.
On the other hand, sociologists have tried to develop an alternative way of studying economic institutions and processes within the larger social frameworks.
In this way, sociologists consider markets as social institutions which are made in culturally specific ways. Sociologists maintain that economies are socially ‘embedded’.
3. In what ways is a market—such as a weekly village market—a social institution?
Ans. Though markets are places of economic interaction, since they are based on a particular social context and social environment, we can also regard them as social institutions where a specific kind of social interaction takes place.
Periodic markets (or weekly markets) are a central feature of social and economic organization. They give a chance to surrounding villages to interact with each other while they sell their goods.
In villages, in tribal areas apart from regular markets, specialized markets are also organized where specific products are sold such as in the fair of Pushkar in Rajasthan. Thus, traders from outside come and also moneylenders, entertainers, astrologers, and other specialists offering their services and product.
Therefore, these periodic markets just do not fulfill local needs, they link the villages with regional economies and sometimes national economies. Thus in tribal areas, they help in maintaining interconnections, which makes these markets a social institution.
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NCERT Class 12 Sociology Textbook Chapter 4 The Market As A Social Institution With Answer PDF Free Download