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Traditional Economy: Definition, Aspects, and Example

  • Ashesh Anand
  • Feb 05, 2022
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While basic features of traditional and capitalist economies are comparable (production, labor, and commerce are all common), the gap deepens when real-world instances of traditional economies are examined. A narrative to be told about an economy where cows can replace currency and communities can literally be on the move in search of better economic conditions.


At first appearance, the term "Traditional economy" appears to refer to the market-driven US economy that Americans have known for centuries.


However, a closer examination reveals that a traditional economy has a very different meaning, one that is based on culture, customs, and local history rather than dollars, cents, profits, and losses.


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What is the Traditional Economy?


Let's say you and a friend decide to go on a trip to a faraway location. You plan to travel to a third-world country in order to gain a new perspective on life. You want to visit an area where people have strong customs and traditions and where money isn't a factor. You're looking for a location with a conventional economy.


So, what is a traditional economy, exactly? A traditional economy is one in which the area's customs, traditions, and beliefs play a significant role in the development of goods and services. 


To put it another way, a traditional economy is one that is based on how people live. The commodities and services are determined by the people's livelihood.


Emerging markets and developing countries are home to the majority of traditional economies. They are frequently found in Africa, Asia, and Latin America. Traditional economies can also be found in small pockets in developing countries all over the world.


All other economies, according to economists and anthropologists, began as traditional economies. As a result, they predict traditional economies to develop over time into market, command, or hybrid economies. The rules of supply and demand direct the creation of products and services in a market economy. 


A command economy is one in which all economic decisions are made by the central authority. The land and the means of production are owned by either the government or a collective. The traits of the other three economies are combined in a mixed economy.


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Aspects of Traditional Economies


Traditional economies are most common in rural parts of emerging second and third-world countries, particularly in Africa, Latin America, Asia, and the Middle East.


It's useful to compare a traditional economy to more-common major world economies like capitalism, socialism, and communism while characterising it.


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  1. Capitalism


Capitalism is a type of free-market economy in which the rules of supply and demand govern the production and distribution of goods and services. The means of production are owned by private corporations or individuals with a strong desire to make a profit. 


Capitalist economies rely on a strong feeling of entrepreneurship as well as a plentiful supply of capital, natural resources, and labor—factors that are uncommon in traditional economies.


  1. Socialism


Socialism is an economic system in which the means of production—labor, capital goods, and natural resources—are owned equally by all members of society. That ownership is typically conferred and controlled by a democratically elected government or a citizen cooperative or public enterprise in which everyone holds shares. 


To avoid income inequality, the government attempts to ensure that the economy's advantages are spread evenly. As a result, socialism is founded on the economic idea of "everyone to his own contribution."


  1. Communism


A style of the economy in which the government owns the means of production is known as communism. While the government does not technically own the workforce, central economic planners chosen by the government order people where to work. 


This is why communism is described as a "command" economy. The communist economy is built on the principle of "from everyone according to his abilities, to each according to his needs," as articulated by German philosopher Karl Marx.


Traditional economies can exhibit aspects of capitalism, socialism, and communism depending on how they run.


Capitalism is present in an agricultural economy that permits individuals to own their farms. Socialism is practiced by a nomadic tribe of hunters who permits its most productive hunters to keep the most meat. Communism is practiced by a similar group that prioritizes feeding meat to youngsters and the old.


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Example of Traditional Economy


The Oribu tribe is a nomadic group of people who live in the Brazilian Jungle Forest. They've been studied for a long time in order to figure out how their economy operates and how resources are allocated among tribal members. 


The community had 1,000 members according to the most recent census. This study revealed that they are mostly an agricultural society that knows how to select suitable locations for the cultivation of specific crops and fruits, as well as expert fishermen.


When it comes to distribution, they have a practice of putting everything they catch during their daily fishing trips in the camp's center. A figure known as "The Ancient" blesses the food and prays to a local deity for the tribe's prosperity. 


Then everyone takes a step to the middle and begins to take as much food as they require. They have a custom in which no one takes more than is absolutely necessary. Because they operate in a traditional economy, no currency is necessary for trading or distribution.


Benefits of a Traditional Economy include


1. Traditional economies foster robust, close-knit communities in which every member contributes to the creation or support of commodities and services.


2. Traditional economies foster an environment in which every member of the community understands the stakes and the role they play in contributing to the traditional economy. This understanding and awareness, as well as the talents developed as a result of this outlook, is then passed down to future generations.


3. Traditional economies do not produce industrial pollution and maintain a clean living environment. Traditional economies simply create and consume what they require, therefore there is no waste or inefficiency in the production of items necessary for a community's survival.


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Disadvantages of a Traditional Economy


1. Traditional economies must constantly work to generate those things in order to stay afloat. There are no vacations or weekends off. To maintain a traditional economy, workers must put in long hours with little guarantee of catching caribou or crops surviving bad weather.


2. A traditional economy is inefficient compared to a market economy, which has a much better track record of ensuring a high quality of life for society's members.


3. There are few career options in a typical economy. In a traditional economy, specific roles are passed down from generation to generation. You'll be a hunter if your father was a hunter. Change is typically avoided in a conventional economy since it poses a threat to a society's survival.


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Watch Now: What is a Traditional Economy?

Traditional Mixed Economies


Things alter when traditional economies interact with market or command economies. Cash assumes a greater significance. It allows those in the conventional economy to purchase more sophisticated equipment. This increases the profitability of their agricultural, hunting, and fishing operations. When this happens, they become a mixed economy in the classic sense.


Capitalism, socialism, and communism can all be found in traditional economies. It all relies on how they're configured. Capitalism is present in agricultural countries that enable private ownership of farmland. When nomadic groups allocate production to those who contributed the most and earned it, they are practicing socialism. 


That would be the case if a farmer gave the greatest cut of meat or the best grains to the best hunter or, say, the community leader. If an economy prioritizes feeding children and the elderly, it is embracing communism and focusing on people's needs.

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