To answer this question, we have to look into the England of the 18th century and the starting of Economics. Economics was then called political economy. Among the early political economists, the most famous was Adam Smith. He is known as the Father of Economics. He published a book called “The Wealth of Nations” in 1776. In his book, Smith tried to understand the market system that started at that time.
Smith argued that economic system is made by individual transactions, like a series of buying and selling. It slowly becomes a self-working, orderly system. Market system is not something anybody deliberately creates. The millions of people that made transactions did not have any intention to create a market system. Each individual looks at his personal interest or gain.
When we try for our personal interests, automatically the interests of the society get protected. In other words, what individuals do for their benefit will prove beneficial to the society as a whole. Smith argued that this is brought about by an invisible power. He called this invisible power as “invisible hand”. In his opinion, the capitalist economy is propelled forward by the selfish interests of individuals. It is when buyers and sellers take rational decisions, protecting their interests that the capitalist economy goes forward smoothly.
Smith used the concept of ‘Invisible Hand’ to argue that when people pursue their selfish interests in the market, it proves beneficial to the Society. When they work for their personal interests, it awakens the economy and that way more wealth is produced. Because of this Smith supported the idea of free market. Free market means a market without controls from the government or any other agency. This idea is called laissez-faire. It is a French word. It means leave something alone to do its work.
It is from the ideas presented by early political economists like Adam Smith, modern Economics is developed. Modern economics says that the system of wealth should be studied as a separate part of the society. Economic system works with its own principles. It does not worry about the social and political background. But sociologists had an entirely different viewpoint. They tried to study economics within the larger sociological framework. Thus they developed an alternative method for studying economic institutions.
Sociologists look at markets as social institutions. They observe that markets are formed through special cultural ways. For example, markets are organized and controlled by special social classes. They have special relations with other institutions, social processes and structures.
Sociologists say that wealth systems are set in the society. They point out two examples. One is the weekly market of the Tribal Groups, and the second is the traditional business community and its business chains in colonial India.