The Market as a Social Institution Notes Class 12 CBSE

The socio-cultural dimensions of the market is a powerful institution that has been the vehicle of change throughout world history. There are different types of market in India which have faced many chain reactions. A market is among the features of our society that have been the cause of greatest concern because of its seemingly unlimited capacity for generating inequality and exclusion.

Introduction to Markets

A market in a very simple understanding may refer to particular markets that may refers to a physical place such as a market next to a railway station. It may also refer to a gathering of people which constitute a market including the buyers and sellers such as fruit market or to an areas or category of trade/business such as market for cars or readymade clothes. In other sense, a market can also refer to the demand for a particular product or service such as market for computer professionals.

A market in a general sense not only includes all such specific markets but also the entire scope of economic activities and institutions in a society. Such an understanding makes a market synonymous with economy. However, market is also a social institution like caste, tribe or family that sets in the social structure of a society.

Sociological Perspective on Markets and the Economy

Economics is a very vast discipline aimed at understanding and explaining how markets work in modern capitalist economies. In other words, it seeks to understand how prices are determined, what is the probable impact of investments or what are the factors that influence the flow of money in the market. Therefore, economics tells us everything about market. However, we know that market is also a social institution.

To understand the role of market as a social institution, we need to understand the beginning of modern economy. In 18th century, the modern economics as we know it today was political economy. The most famous political economist of the times, Adam Smith in his book ‘The Wealth of Nations’, attempted to understand the emerging ‘market economy’. According to him, a market economy is made up of a series of individual exchanges or transactions that automatically create a functioning and ordered system.

For him, every individual works for his/her own self-interest and in this pursuit, the interest of the society is looked after by an unseen force. This ‘invisible force’ converts what is good for each individual into what is good for the society.

Smith uses the idea of 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. This is nothing but as free market, a market free from all kinds of regulation. Thus, in economic philosophy it is called as laissez-faire which is a French phrase that means ‘leave alone’ or ‘let it be’.

For Adam Smith, an economy is a separate part of a society that operates according to its own laws, leaving out the social or political context in which a market operates. In contrast to this, sociologists see economic institutions and processes within a large social framework.

Sociologists view markets as social institutions that are constructed in culturally specific ways. For example, markets are often controlled or organised by particular social groups or classes and have specific connections to other institutions, social processes and structures. For sociologists, all economies or markets are socially embedded (dependence).

This is further illustrated in two examples, one of weekly tribal haat, and other is ‘traditional business community’ and its trading networks in colonial India.

Weekly Tribal Market

In most agrarian societies, periodic or weekly markets play a significant role in the social and economic organisation of society. Weekly markets bring people together from surrounding villages, who come and sell their agricultural or other produces and to buy manufactured goods and other items that are not available in their villages.

These weekly markets attracts traders from outside of the local areas, as well as moneylenders, entertainers, astrologers and others who offered their services and wares. Apart from weekly markets, in the rural India, there also exists specialised markets that takes place at less frequent intervals such as cattle markets.

These periodic markets link different regional and local economics together and further link them to the national economy.

The weekly haats are a common sight in rural as well as urban India. In hilly and forested areas inhabited by adivasis, the weekly market is the major institution for the exchange of goods as well as for social intercourse. Local people come to the market to sell their produce to traders, who carry it to the towns for resale.

In return they buy essentials such as salt and agricultural implements, and consumption items such as bangles and jewellery. But for many visitors, the primary reason to come to the market is social such as to meet kin, to arrange marriages, exchange gossips, etc.

Change in Weekly Markets

The old institution of the weekly markets had undergone immense change over time. These are:

(a) As the remote areas went under the control of the colonial state, these markets were incorporated into regional and national economics.

(b) The tribal areas were build up by construction of roads and by pacification of the locals to exploit the tribal resources.

(c) As the weekly haats opened up, there was influx of traders, moneylenders and non-tribals. This transformed the remote markets as their produce was sold to outsiders and money as well as new goods entered the market. Tribal people were recruited as labourers in plantations and mines.

These changes also led to many negative impacts on the tribes. The most common impact is the impoverishment which resulted from the loss of land.

According to Alfred Gell (1982), an anthropologist the layout of the Dhorai village market symbolises the hierarchical inter-group social relations in the region.

Different social groups are located with the market according to their caste in the social hierarchy and market. For example, the wealthy and middle rankers sat in the central zones. The quality of social relations is expressed in the goods that are bought and sold, and the manner of transaction. All this highlight hierarchy and social distance rather than social equality.

Caste-Based Market and Trading in Colonial Scenrio

The economic transformation of the market is said to have begun with the colonial era. It was assumed that India consisted of ancient village communities that were self-sufficient and their economies were based on non-market exchange. It was believed that colonialism has not only bought the commercial money economy to the agrarian economies but also incorporated them into wider networks of exchange. This had brought many radical social and economic changes in the Indian society.

However, recent historical research shows that the Indian economy was already monetised by the late pre-colonial period. There exited various kinds of non-market exchange systems such as the Jajmani system wherein villages were incorporated into wider networks of exchange through which agricultural products and other goods circulated.

As a result, one can highlight that the differentiating line between the traditional and modern economy i.e. pre-capitalist and capitalist is not clear. According to many researches, the pre-colonial Indian trading networks were already extensive and sophisticated. India was already a major manufacturer and exporter of handloom cloth as well as many other goods including species that had a major demand in the global market especially in Europe.

Jajmani System

Jajmani system was a system of non-market in which produced goods and services were exchanged within many villages without the use of money. This system was quite sophisticated and extensive. The Jajmani system also characterised by the broken hereditary relationship of various castes.

Therefore pre-colonial India had well-organised manufacturing centres, as well as indigenous Merchant groups, trading networks and banking systems that enabled trade to take place in India and the world. These traditional trading communities had their own systems of banking and credit.

An important instrument of exchange and credit was the hundi. The hundi or Bill of Exchange (like a credit note) allowed merchants to engage in long distance trade. A merchant in one part of the country could issue a hundi that would be honoured by a merchant in another place or region.

Social Organisation of Markets : Traditional Business Communities

There is a close connection between the caste system and the economy, in terms of landholding, occupational differentiation and so on. This fact is also true for trade and markets. Traditionally, ‘Vaisyas’ constitute one of the four varnas, which indicates the importance of the merchant and of trade or business in the Indian society.

However, like other varnas, ‘Vaisya’ is often of a status that is claimed or aspired to rather than a fixed identity or social status. Although there are ‘Vaisya’ communities, whose traditional occupation has been trade or commerce for a long time, there are some caste groups that have entered into trade. Such groups tend to acquire or claim ‘Vaisya’ status in the process of upward mobility.

In all caste communities, in most cases there is a complex relationship between caste status or identity and caste practices, including occupations. The ‘traditional business communities’ include not only ‘Vaisya’ but also other groups with distinctive religious or other community identities such as Parsis, Sindhis, Bohras or Jains.

One thing important to note here is that Merchant Communities did not always have high status in society. Bnajaras, a marginalised tribal group that participated in long distance trade is an example of this.

Therefore in each case, the particular nature of community institutions and ethos gives rise to different organisation and practices of business.

One of the reasons for this caste-based specialisation is that trade and commerce often operate though caste and kinship networks. Businessmen are more likely to trust others of their own community or kin group. Thus, they tend to do business within such networks rather than with others outside and this tends to create a caste monopoly within certain areas of business.

Colonialism and the Emergence of New Markets

The advent of colonialism in India produced major upheavals in the economy causing disruptions in production, trade and agriculture. It lead to the decline of the Indian handloom industry. While the Indian economy was monetised in the pre-colonial time, researches believe colonialism to be the turning point.

Earlier, India was a major supplier of manufactured goods. But after colonialisation, it became a source of raw material and agricultural products while becoming a consumer of manufactured goods.

(a) New groups (especially the Europeans) entered into trade and business, sometimes in alliance with existing merchant communities and in some cases by forcing them out.

(b) But rather than completely overturning existing economic institutions, the expansion of the market economy in India gave some merchants an opportunity to improve their position by re-orientating themselves to the changing economic circumstances.

(c) In many cases, new communities emerged, these communities took advantage of the economic opportunity provided by colonisation and continued to hold economic power even after independence.

One example of such a new communities is the best known business community in India is the ‘Marwaris’. This group comprises of leading industrialists such as the Birlas, as well as shopkeepers and small traders. The Marwari’s took advantage of the new opportunities in colonial cities such as Calcutta and settled throughout the country to carry out trade and money lending.

Like the Nakarattars, the success of the Marwaris rested on their extensive social networks, which created the relations of trust necessary to operate their banking system. Many Marwari families accumulated enough wealth to become moneylenders and by acting as bankers also helped the commercial expansion of the British India. After independence, some Marwari families transformed themselves into modern industrialists who even today control more of India’s industries.

Understanding Capitalism as a Social System

Karl Marx (the founder of modern sociology, and a major critic of modern capitalism) understood capitalism as a system of commodity production or the production for the market through the use of wage labour. Marx believed that ‘All economic systems are also social systems.”

According to him, each mode of production consists of particular relations of production, which gives rise to a specific class structure. He emphasised that economy does not consist of things, but is made up of relations between people who are connected to ne another through the process of production. Under the capitalist mode of production, labour becomes a commodity as workers sell their labour power in the market to earn wages.

This gives rise to two classes-capitalists, who own the means of production and workers, who sell their labour to the capitalists. The capitalist are able to profit from this system by paying the workers less than the value of what they actually produce, and extract surplus value from their labour.

Commoditisation and Consumption

The growth of capitalism has led to an extension of markets into places and spheres of life that were previously untouched by this system.

Commoditisation or Commodification occurs when things that were earlier not traded in the market become commodities. For instance, labour or skills become things that can be bought or sold. According to Marx as well as other critics of capitalism the process of commdification has negative and social effects.

The commodification of labour is one example, but there are many other examples in a contemporary society. For instance, there is a controversy about the sale of kidneys by the poor to cater to the rich patients who need the transplants.

According to many people, human organs are not commodities. Earlier humans were bought and sold as slaves. Now, it is considered to be immoral. However in the modern society, a person’s labour can be bought and other services or skills can be provided in exchange for money. According to Marx, such a situation can only be found only in capitalist society.

Some other examples include:

  • Marriages arranged by professional marriage bureaus and websites.
  • Private institutions for personality development, spoken english etc.
  • Commodification of manner, etiquette and education.

Another important feature of capitalist society is consumption, not just because of economic reasons but also because of its symbolic meaning. Consumption is an important way in which social distinctions are created and communicated.

The consumer conveys a message about his or her socio-economic status or cultural preferences by buying and displaying certain goods, and companies try to sell their goods by appealing to symbols of status or culture.

Most renowned sociologist Max Weber , coined the term status symbol to describe this relationship. He also pointed out that the goods that people buy and use are closely related to their status in society .He wrote about how classes and status groups are differentiated on the basis of their lifesytles.

Globalisation : Interlinking of Local, Regional, National and International Markets

Globalisation is the period in which world is becoming increasing connected-not only economically but also culturally and politically. The term globalisation refers to a number of trends, especially the increase in international movement of commodities, money, information and people, as well as the development of technology and other infrastructure that allows this movement.

The central feature of globalisation includes:

(a) Increasing extension and integration of markets around the world. This integration means that changes in a market in one part of the globe has an impact somewhere else.

(b) For instance, the software industry in India declined after 9/11 attacks in US. India’s software services industries and Business Process Outsourcing (BPO) are some of the major fields through which India is becoming a part of the global market.

(c) Under globalisation, not only money and goods, but also people, cultural products circulate rapidly around the world, enter new circuits of exchange and crate new markets. Parts of culture that were not a part of market create a new market. For example, market of Indian spirituality and knowledge including yoga and ayurveda.

(d) Increasing tourism also suggests how culture becomes a commodity. For example, the annual cattle fair is Pushkar, Rajasthan. This fair is not just major social economic event for local people but also an event wherein the Hindu pilgrims, camel traders and foreign tourists mingle.


The primary policy behind globalisation is liberalisation which started in the late 1980s.

Liberalisation is a process which includes a range of policies such as the privatisation of public sector enterprises, loosening of government regulations on capital, labour and trade, reduction in tarrifs and import duties and easier access for foreign companies to set up industries in India. In other words, these changes are known as marketisation, which is the use of market or market-based processes, to solve social, political or economical problems.

These processes include relaxation or removal of economic controls, privatisation of industries and removal of government control over wages and prices. It is believed that marketisation will promote economic growth and prosperity because private industry is more efficient than government-owned industry.

Advantages of Liberalisation

(a) Liberalisation stimulates economic growth and opens up the Indian markets to foreign companies. Thus, many foreign branded goods that were previously unavailable are now part of the Indian market.

(b) Increasing foreign investment helps economic growth and employment.

(c) The privatisation of public companies increases the efficiency and reduces the government’s burden of running these companies.

Disadvantages of Liberalisation

(a) Some sectors of Indian industry (like IT or agriculture)  may benefit from access to a global market but other sectors (like automobile, electronics or oilseeds) will lose because they cannot compete with foreign producers.

(b) Indian agricultural sector is now exposed to competition from other countries because import of agricultural products is allowed.

(c) Earlier, Indian agriculture was protected from the world market by support prices and subsidies. Due to liberalisation, support prices and subsidies are reduced or withdrawn.

(d) Small manufacturers are exposed to the global competition as foreign goods and brands have entered the market. But they are unable to compete with them.

(e) The privatisation or closing of public sector industries has led to loss employment in some sectors.

(f) It has enhanced the growth of unorganised sector that do not offer regular income or permanent jobs.