Economic Institutions: Useful notes on Economic

Institutions!
The term ‘economic institutions’ is usually used for socially
sanctioned such concepts and structures which men have developed
in the process of satisfying their material needs. Economic
institutions provide basic physical subsistence for society and meet
needs for food, shelter, clothing and other necessities of life.

From the time of Karl Marx, Max Weber and Emile Durkheim and
other sociologists of 19th and early 20th centuries have had a long and
deep interest in economic institutions, especially as these relate to
non-economic aspects of social life such as the family, education and
the state.

The term ‘economic institutions’ is usually used for socially sanctioned

such concepts and structures which men have developed in the
process of satisfying their material needs. Economic institutions
provide basic physical subsistence for society and meet needs for food,
shelter, clothing and other necessities of life.

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These institutions include production agriculture and industry and the

distribution, exchange and consumption of commodities, goods and
services necessary for human survival. Secondary economic
institutions are credit and banking system, advertising, co-operatives,
etc.
In detail, these institutions are studied by the science of economics.
Economists study the internal workings of economic system—
production, distribution, supply and demand and consumption of
goods, taxation, borrowing, saving and spending, and so on.

Sociologists are not economists. Therefore, they are not much

interested in the mechanisms of production and distribution but they
have surely an interest in the relations of men incident to a particular
economic order.

All human and social life has an economic basis, the nature of which
determines the formal structure of society. Economic institutions arise
out of the determinants we make with respect to the goods we need.
Sociologists study economic systems to better understand how the
production of goods influences social life.

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They study types of economic systems, the size and power of

corporations, the occupations in economic systems, and how work
affects the rest in one’s life. Not only this, sociologists study the role of
values and preferences in affecting production and consumption of
goods, the influence exerted by prestige or custom on the price of
goods, the origins and motivations of entrepreneurs and managers,
the contribution of education to productivity and similar issues.

In brief, sociologists study how the economic system interacts with

other social institutions or how the non-economic aspects of social life
affect the economic aspects. By knowing the political conditions of
different societies, for instance, it is possible to predict some of the
economic activities that will occur in them. Even something so
intimate as friendship may condition economic processes.

If workmen in a clique do not accept management’s goals of

production, they often try deliberately to slow the output. Moreover,
they use the lever of friendship and loyalty to enforce these restrictive
practices in their group. Members often ‘go along’ with the norms
because they wish to remain in good standing in the clique (Smelser,
1962).
Sociologists and Economists Perspectives:
Although sociologists and economists do not study the same subjects,
they actually cover much of the same material, but with different
interests and points of view. Economists cannot understand the
success or failure of an economic system without considering how it
interacts with the rest of the society.

Sociologists cannot understand how systems interact unless they

understand the functioning of each system. Nevertheless, the
disciplines have different goals. Economists specialize in studying the
economic system—the study of the production and distribution of
goods and services.

It is just one of society’s important interacting parts whereas

sociologists study the whole of society, including the economic system.
Economists think, as do sociologists, in terms of systems and sub-
systems; they stress the relations between parts, especially patterns of
dependence, dominance, exchange, and the like.
Sociologists consider the economy as a sub-system of society, then
they shall ask how it is related to other major sub-systems the cultural
system (for example, values and ideologies), the political system, the
stratification system, and so on.
Economic Institutions
Economic institutions came into existence as a result of evolution of society. There are no
concepts in the primary hunting and gathering society because food was in abundance without
any monopoly of anyone. Individuals moved continuously in research of food and better
conditions and this nomadic life did not allow any restriction but when society changed into
agrarian society, a surplus product came into existence which was started to exchange with
services and other things and caused. the beginning of economic activities. In the division of
labour, specialized tasks and elements prevailed like fishing, blacksmith, carpentry and weaving
etc. professions started .but with the beginning of industrial society, the economic institution
gained momentum, the center of social activities became the economic activities and division of
work system started on the basic of skills and mutual give and take got rapidness. Instead of
things, coins started to be used and prices were fixed and everything was to be considered in
terms of currency coins.

Definitions of Economic Institution

1. Ian Robertson :
Economic institution is the institutionalized system for producing and distributing goods and
services."

2. RT. Schaefer :
The social institution through which goods and services are purchased, distributed and
consumed."

Economic Activities
1. Primary Sector :
This is that part of economy in which economic activities consist of producing raw materials or
collecting those. Just like, fishing, hunting, gardening and agriculture.

2. Secondary Sector :
This is that part of economy where through economic activities the raw materials produced by
primary sector are made better and are value-added like to make furniture from wood, to
manufacture cars from iron, to prepare cloth from cotton and to prepare food products from
wheat and rice.

3. Tertiary Sector :
This is that part of economy where economic activities consist of services like treatment, care,
education, communication, engineering and transport, etc.

4. Distribution of Labour :
Division of labour, the specialization by individuals or groups in particular economic activities.
Economic Evolution and Division of Labour
Economic evolution can be divided into three stages with reference to division of  labour. Its
detail is given below:

1. Pre-Industrial Societies :
These societies belonged to primary sector of economy, including fishing, shepherding, mining
and agriculture. Family is a unit of production and consumption. Distribution is simple and on the
basis of sex. Males do fishing, shepherding and working in fields and females do domestic jobs
like care of children and protection.

2. Industrial Societies :
The majority of the population is busy in professional activities, including production and
distribution of articles i. e., workshop, factory markets and banks. The base is education and
professional skill in the evolution of this economic system like profession, doctor, carpenters,
medicine and factory skilled trades etc.

3. Post Industrial Societies :

In these societies, the majority of the population is busy in providing services activities. A small
part of population is busy in production activities (agriculture and industry). In this type of
society, the' distribution is on the basis of specialization. For example, for treatment of eye
diseases, eye specialist and similarly heart specialist, computer experts, manufacture, engineer,
communication producers, editors, actors and reporters etc.

Functions of Economic Institution

Economic institution does the following functions for the betterment and welfare of individual of
a society:

1. Regulation of Economic Activities :

The economic activities in traditional agrarian societies were simple and generally of permanent
nature. In the industrial societies, these activities are of different nature and are variable and to
create an organization for them is necessary because disorganization of there may lead to
socialist dispersion. To determine prices, to stabilize these, to keep an eye on demand and
supply and to ensure their supply are sense of the duties of the economic problems.

2. Training for Economic Activities :

Training is the most of economic activities in the modern industrial societies, to do these
activities in. a suitable manner and an economic institution provides this, tracing With reference
to its different departments, including industrial administration, business, banking and stock
exchange, individual's rules and regulation and marketing etc. The welfare in the modern age
depends upon the organized economic activities for which skilled persons play an important
role. This skilled labour force is prepared by economic institution.
3. Formulation of Regulation of‘Economic Exchanges :
Business dealing is a touching matter therefore, there is a need of rules and regulation in this
industrial and business era. Political institution has its supervision on these matters and rules
and regulations are fixed after considering the needs of economic institution and timely changes
are made in these to avoid any complication and irregularity to keep the activities continue
effectively. These rules include property exchange, custom laws, expert important rules and
registration of companies etc.

4. Monitoring of Economic Activities :

Economic institution supervises all economic activities. These activities are recording and data
is collected and in the light of this data, a future policy to make them more effective is prepared.
The supervision problem has become important in the competition environment and to keep
control on our demand and supply and to keep a balance is necessary because unbalance of
this may upset the economic system.
It ensures the division of wealth and precious sources to avoid accumulation of wealth and its
negative effects on the society i.e. to keep the society free from class struggle and tension
leading to conflict and dispersing the harmony of social system.

5. Maintaining Demand and. Supply : 

This balance of demand and supply controls the economic activities. Rise and fall of prices, the
situation of stock exchange, production of industrial articles, payment of services determination
and chances of employment and inflation depend upon demand and supply. The ability to keep
this balance determines the
strength of economic institution. The development plans for progress depend upon this. Prices
remain controlled and increase the stability of the society and the society is saved from some
unpleasant situatio