Class 12 Sociology · Chapter 4 NotesThe Market as a Social Institution

Economics studies how markets work in modern capitalist economies, such as how prices are set or why people save and spend. Sociology asks a different question: how are markets shaped by society? Adam Smith, in The Wealth of Nations, argued that the market economy is made up of countless individual exchanges that automatically create an ordered system, even though no one intended it. Modern economics grew from this idea and often studies the economy as a separate part of society. Sociologists, in contrast, see markets as social institutions constructed in culturally specific ways. They argue that economies are socially 'embedded' — controlled or organised by particular groups and connected to other institutions such as caste, kinship and class.

• Adam SmithThe Wealth of Nations; the market as a self-regulating system of exchanges
• Sociologymarkets are social institutions, not isolated economic machines
• Embeddednesseconomic activity is rooted in social relationships

In agrarian and peasant societies, periodic markets are central to social and economic life. The weekly haat brings together people from surrounding villages to sell produce and buy goods not available locally. It also attracts traders, moneylenders, entertainers and specialists. In hilly and forested adivasi areas, where settlements are scattered and communications poor, the weekly market is the main institution for exchange and social contact. A study of Dhorai in Bastar district shows local Gonds and other adivasis selling forest produce to mainly caste Hindu traders, while buying salt, turmeric, cloth, jewellery and trinkets. Forest officials also attend to make payments to tribal labourers. For many visitors, the main reason to come is social — to meet kin, arrange marriages and exchange news.

• Haatweekly market linking villages to towns and the wider economy
• Dhorai, Bastaradivasi sellers, caste Hindu traders, forest officials
• Social functionsmeeting kin, arranging marriages, gossip

Older accounts treated India's pre-colonial economy as unchanging and non-market. Recent historical research shows that India was already extensively monetised, with sophisticated trading networks, manufacturing centres and banking systems. India was a major exporter of handloom cloth and spices to Europe. Traditional trading communities had their own banking and credit systems. An important instrument was the hundi, a bill of exchange that allowed merchants to conduct long-distance trade. Because trade took place mainly within caste and kinship networks, a merchant in one region could issue a hundi that would be honoured by a merchant elsewhere. The Nakarattars of Tamil Nadu are a well-known example: their banking system was caste-based, resting on reputation, marriage ties and shared community institutions rather than a central bank.

• Hundibill of exchange or credit note used in long-distance trade
• Nakarattarscaste-based banking system in colonial India
• Trust within caste and kinship networks enabled trade and credit

Sociological studies of the Indian economy have focused on traditional merchant communities or castes. The Vaisyas form one of the four varnas, showing the old importance of trade. But 'Vaisya' is often a claimed or aspired status rather than a fixed identity, and groups that enter trade may claim it through upward mobility. Traditional business communities include not only Vaisyas such as banias but also Parsis, Sindhis, Bohras and Jains. Merchant communities did not always enjoy high status; during the colonial period the long-distance salt trade was controlled by the Banjaras, a marginalised tribal group. Because businessmen tend to trust their own community or kin, trade often operates through these networks, creating caste monopolies in particular areas of business.

• Traditional business communitiesbanias, Parsis, Sindhis, Bohras, Jains
• Banjarascontrolled the colonial salt trade
• Caste and kinship networks create trust and monopolies in business

Colonialism brought major upheavals: the handloom industry declined as cheap English textiles flooded the market, and India shifted from being a supplier of manufactured goods to a source of raw materials and a consumer of British manufactures. New groups, especially Europeans, entered trade, sometimes allying with existing merchants and sometimes displacing them. Yet existing institutions were not completely overturned. Some merchant communities improved their position by adapting, and new communities emerged. The Marwaris are the best example. They became successful during the colonial period by taking advantage of opportunities in colonial cities such as Calcutta, using extensive social networks to build banking and moneylending businesses. Later, some Marwari families became modern industrialists, and Marwaris still control much of India's industry.

• Decline of handloom industry due to cheap English cloth
• India became a source of raw materials and a market for British goods
• Marwarisfrom migrant traders to merchant bankers to industrialists

Karl Marx, a founder of modern sociology, saw capitalism as a system of commodity production — production for the market using wage labour. He argued that every economic system is also a social system, made up of relations between people rather than just things. Under capitalism, labour itself becomes a commodity because workers must sell their labour power to earn a wage. This creates two basic classes: capitalists, who own the means of production such as factories, and workers, who sell their labour. Capitalists profit by paying workers less than the value of what they produce, extracting surplus value. Marx's ideas inspired many later debates about the nature of capitalism.

• Capitalismproduction for the market through wage labour
• Classescapitalists own the means of production; workers sell labour
• Surplus valuethe difference between what workers produce and what they are paid

As capitalism grows, markets extend into spheres of life previously untouched by them. Commodification is the process by which things that were not earlier traded become commodities. Labour is the classic example, but there are many others. In contemporary India, marriage arrangements have become a paid service through marriage bureaus and websites; personality development, spoken English and coaching classes sell social skills once learnt in the family; and private schools and colleges commodify education. There is also controversy over the sale of kidneys by the poor to rich patients. Consumption itself becomes important because it carries symbolic meaning. Max Weber coined the term status symbol to describe how goods people buy and display — such as a cell phone brand or car model — communicate their socio-economic status and lifestyle.

• Commodificationmaking something into a commodity that can be bought and sold
• Exampleslabour, marriage bureaus, coaching classes, private education
• Status symbolgoods that indicate social status and lifestyle (Max Weber)

Since the late 1980s, India shifted from state-led development to liberalisation, ushering in globalisation — increasing interconnection of economies, cultures and politics. Globalisation involves the movement of commodities, money, information and people, supported by developments in computers, telecommunications and transport. Markets around the world become integrated, so a slump in the US economy can affect India's software industry. India's software services and BPO industries connect it to the global economy. Culture itself can become a commodity, as with the Pushkar camel fair, marketed internationally as a tourist attraction alongside its religious significance. Liberalisation includes privatisation, deregulation, reduced tariffs and easier entry for foreign companies. Supporters argue it promotes growth and efficiency; critics point to job losses, pressure on farmers and small manufacturers, and the growth of unorganised sector employment.

• Globalisationintegration of local, regional, national and international markets
• Liberalisationprivatisation, deregulation, lower tariffs, foreign investment
• Pushkar fairculture and religion becoming marketable to tourists
• Debatemarket efficiency versus state protection and social costs