Sociological perspectives on markets and the economy

The discipline of economics is aimed at understanding and explaining how markets work in modern capitalist economies.It is important to understand the role of sociology in understanding the role of markets.For this one has to understand the beginning of modern economics in 18th century.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 emerging at that time.He 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 invovled in the millions of transactions had intended to create a system.Each person looks only to their 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 he 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.The society overall benefits when individuals pursue their own self-interest in the market because it stimulates the economy and creates more wealth.This economic philosophy was also given the name Laissez-faire 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 a 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.