The Market as a Social Institution

Written and reviewed by Subhra Gupta, Humanities faculty at UniDrill (M.A. Sociology, University of Delhi · 7 years teaching Humanities). Based on NCERT Sociology Class XII (Indian Society), Chapter 4.

Could your grandparents have bought a bottle of water?

For most of the twentieth century, selling drinking water in a sealed bottle would have sounded absurd to most Indians. Today you buy it at a railway station without a second thought. Nothing about water changed. What changed is that something outside the market was pulled inside it. That small act is a clue to the big idea of this chapter: a market is not just a place where prices meet. It is a social institution, shaped by culture, caste, kinship, class and power, in the same way that family or caste are.

Many meanings of "market"

In everyday speech "market" means several different things. All of them are specific, and you know which one is meant from the context.

When we talk about "the market" in general, without pointing to any one of these, we mean the whole spectrum of economic activities and institutions. In this broad sense, "the market" is almost equivalent to "the economy".

Economists and sociologists look at markets differently

Economics tries to explain how markets work in modern capitalist economies: how prices are set, what investment does, why people save or spend. To see where sociology comes in, go back to eighteenth century England and the birth of modern economics, then called "political economy".

Adam Smith (1723–90), in The Wealth of Nations, tried to understand the market economy then emerging. He argued that the market is made up of a series of individual exchanges, and that these automatically create a functioning, ordered system even though no individual intended to create one. This idea is popularly called the invisible hand.

Modern economics grew from this thinking. It assumes that the economy can be studied as a separate part of society, running on its own laws, leaving out the social and political setting. Sociologists take the opposite route.

Embeddedness means that economic activity is not separate from society. Markets are often controlled by particular social groups or classes, and are connected to other institutions, processes and structures. The chapter illustrates this with two cases: a weekly tribal haat and the trading networks of "traditional business communities".

Beyond the textbook. For the exam: sociologists say that economies are socially embedded, and that markets are social institutions. In reality: the idea of embeddedness is associated with the economic historian Karl Polanyi, and later with the sociologist Mark Granovetter, who studied how personal networks affect economic life. You do not need these names for CUET, but the idea is useful: ask who is allowed into a market, whom people trust, and what else happens there besides trade.

Pause and predict: an economist and a sociologist both study a weekly village market. What is one thing the sociologist would notice that the economist might leave out?

Check your answer: that people also come to the market to meet kin, arrange marriages and exchange news, and that particular social groups control who buys and who sells. The economist focuses on prices and quantities, while the sociologist sees the social relationships around them.

Case study 1: the weekly haat

In most agrarian societies, periodic markets are central to social and economic life. Weekly markets bring together people from surrounding villages to sell produce and buy manufactured goods. They attract traders from outside, moneylenders, entertainers and specialists of many kinds. Specialised markets like cattle fairs happen at longer intervals. These periodic markets link local and regional economies to the wider national economy and to towns and cities.

In hilly and forested areas, where settlements are scattered and roads poor, the weekly haat is the main institution for both the exchange of goods and social contact. Local people sell agricultural or forest produce to traders who carry it to towns, and buy essentials such as salt and farm tools. But for many visitors the main reason to come is social: to meet kin, arrange marriages and exchange gossip.

Cause → effect (colonial period): colonial rule brought tribal areas under state control → roads were built to open them up → traders and moneylenders from outside entered → forest produce was sold outside and money entered the local economy → tribal people were recruited to work on plantations and in mines → local economies were linked to wider markets, usually with very negative effects, including loss of land to outsiders.

Case study 2: caste and kin networks in trade

Some traditional accounts of Indian history treat Indian society as unchanging until colonialism: self sufficient villages with non market exchange. The chapter corrects this picture.

Two views. For the exam: colonialism brought major economic transformations, such as the demand that land revenue be paid in cash. Another reading: recent historical research shows that much of India's economy was already extensively monetised in the late pre colonial period, and that villages, even where non market exchange such as the jajmani system existed, were already linked into wider networks of exchange. The sharp line between "traditional" and "modern", or pre capitalist and capitalist, is therefore rather fuzzy. India was a major exporter of handloom cloth and spices, with well organised manufacturing centres, merchant groups and banking systems.

The hundi. Traditional trading communities had their own systems of banking and credit. An important instrument was the hundi, a bill of exchange, like a credit note. Because trade took place within caste and kinship networks, a merchant in one place could issue a hundi that a merchant in another place would honour.

Traditional business communities in the chapter include not only Vaishya communities but also groups with distinct religious or other community identities. Merchant groups did not always have high status. The sociological point is that each community's institutions and ethos shape how its business is organised.

Colonialism and new markets

Colonialism disrupted production, trade and agriculture. The standard example is the collapse of the handloom industry once the market was flooded with cheap manufactured textiles from England. Most historians treat the colonial period as the turning point.

The expansion of the market economy did not completely overturn existing institutions. It also gave new opportunities to some merchant communities, which reorganised themselves to take advantage of the change. In some cases new communities emerged and held economic power even after Independence. The chapter's example is a community that rose from small migrant traders to merchant bankers and then industrialists, helped by extensive social networks that created trust. The lesson is about social context: economic success was built on social networks, not only on capital.

Capitalism as a social system: Marx

Karl Marx, one of the founders of sociology, was also a critic of modern capitalism. He saw capitalism as a system of commodity production, or production for the market, using wage labour.

The chain in one line: production for the market → labour becomes a commodity that workers must sell for wages → two basic classes (capitalists who own the means of production, workers who sell labour) → capitalists profit by paying workers less than the value they produce, extracting surplus value.

Marx stressed that every economic system is also a social system. Each mode of production has its own relations of production, which give rise to a class structure. The economy is not made of things moving in the market but of relations between people connected through production.

Commodification and consumption

A commodity is anything that is bought and sold. Commodification (or commoditisation) is the process by which something that was not earlier traded in the market becomes a commodity. Marx and other critics see this as having negative social effects. Human beings were once bought and sold as slaves, but it is now considered immoral to treat people as commodities, and yet in modern society almost everyone accepts that labour can be bought. The controversy over the sale of kidneys by poor people to rich patients shows that many believe some things should not be commodities.

A commodity need not be a thing. It can also be a service.

Consumption and status. In capitalist societies, consumption becomes more important, not only for economic reasons but for its symbolic meaning. Consumers send messages about their socio-economic status or cultural taste by what they buy and display, and companies sell goods by appealing to symbols of status or culture. Max Weber was among the first to point out that the goods people buy are closely related to their status, and he coined the term status symbol. He also wrote about how classes and status groups differ in their lifestyles. For the urban Indian middle class today, the make of a phone or the model of a car are markers of status.

Pause and predict: you notice that two shops sell phones with identical features, but one phone is advertised as "what successful people carry". Which concept is the advertiser using?

Check your answer: status symbol. The advertiser is attaching a social meaning of success to the product, so that buying it becomes a way of communicating social standing. This is Weber's point about goods and status.

Globalisation: markets linked from local to global

Since the late 1980s India has moved from state led development towards liberalisation, ushering in globalisation: an increasingly interconnected world, economically, culturally and politically. It includes more international movement of goods, money, information and people, along with the technology and infrastructure that allow it. The integration of markets means that a change in one part of the world can have a major impact far away. Software and business process outsourcing (BPO) services, including call centres, connect India to the global economy by providing low cost services to customers in developed countries.

Culture itself becomes a commodity. Products, services and culture once outside the market are drawn in. The marketing of yoga and ayurveda abroad, and international tourism, are examples. The chapter's illustration is an annual livestock fair in Rajasthan that remains important for local traders and herders but is also marketed internationally as a tourist attraction. A market (the fair) has become a product sold in another market (tourism).

Liberalisation: market or state?

Globalisation of the Indian economy followed mainly from the policy of liberalisation, begun in the late 1980s. Another word for these changes is marketisation: using markets, not government regulation, to solve social, political or economic problems.

The chapter presents both sides fairly. The impact has been mixed.

Support prices are the prices at which the government agrees to buy farm produce, ensuring a minimum income for farmers. Subsidies lower the cost of farming because the government pays part of the cost of inputs such as fertiliser or diesel.

Exam traps

60-second revision

Where this chapter connects

• Previous: Social Institutions: Continuity and Change explains the caste and kinship networks that appear inside traditional trade.
• Next: Patterns of Social Inequality and Exclusion shows how market and institutional inequalities combine.
• Later in the course: Globalisation and Social Change and Change and Development in Industrial Society continue the story of liberalisation, industry and employment.
• Class XI link: Introducing Western Sociologists covers Marx and Weber, whose ideas on capitalism and status appear in this chapter.