What is a Traditional Economy?

Ken Black

A traditional economy is a system where traditions, customs, and beliefs shape the goods and products the society creates. Countries that use this type of economic system are often rural and farm-based. Also known as a subsistence economy, a traditional economy is defined by bartering and trading. Little surplus is produced, and if any excess goods are made, they are typically given to a ruling authority or landowner.

Traditional economies are typically rural and farm-based.
Traditional economies are typically rural and farm-based.

Hunting, gathering, and cultivation are the main tasks for workers in a traditional economy. There are big parts of the world's population that still work in traditional economies, primarily in third-world countries with larger indigenous populations. Underdeveloped areas of South America, Africa, and Asia still rely on this type of economy for survival.

Typically found in impoverished countries, a traditional economy is also referred to as a subsistence economy.
Typically found in impoverished countries, a traditional economy is also referred to as a subsistence economy.

In many cases, a traditional economy may have no official currency whatsoever, with any available wealth going to the upper classes. As neighboring countries and influences permeate a traditional economy, the economic system can morph into a mixed, command, or market economy. In command economies, prices and supplies are determined by the government, while, in contrast, prices in a market economy are set by supply and demand. A mixed economy includes both private enterprise and some degree of government control.

Areas of Africa still rely on an economy in which traditions, customs and beliefs shape the goods and products created.
Areas of Africa still rely on an economy in which traditions, customs and beliefs shape the goods and products created.

One advantage of a traditional economy is that each person has a function in society. Social bonds are thus deepened, people typically feel more unified with the society, and a sense of worth often increases. Also, because goods are only made for survival, the country's natural resources may not as compromised as in other types of economies.

The downside is that individuals tend to remain in set roles in a traditional economy, and their financial well-being rarely increases. Indeed, most of those living in this type of economy find themselves mired in poverty for their entire lives. In his book titled Capitalism at the Crossroads, Stuart L. Hart writes that four billion people may exist in traditional economies.

The Inuit tribe of northern Canada is one example of a society that still uses a traditional economy. Families teach their children the same customs and allocation of resources that have been practiced for hundreds of years. Children in this society are taught how to hunt, fish, make tools, and build shelter.

Technology and independence are shunned in favor of traditions that have been refined over the years. For example, if a bear is caught for food, the main hunter would receive the first piece and the remaining heads of family in the tribe would receive their appropriate portion of the animal for food and clothing. The custom of sharing and collaborating for the good of the society defines a traditional economy. Basic necessities are sometimes traded, but goods are rarely bought and sold.

One downside of a traditional economy is that many find themselves living in poverty for their entire lives.
One downside of a traditional economy is that many find themselves living in poverty for their entire lives.

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Discussion Comments

anon293018

@sharan101: The government has nothing to do with traditional economy.

anon153300

what are the main advantages and disadvantages of the traditional economy?

how will it help students improve their business studies skills?

anon146274

what goods are produced in a traditional, command and market economy?

anon116083

What are the reasons that you would want a country to be a traditional economy?

anon109057

Does nicaragua have a traditional economy?

anon79847

i wonder do the so called government consider CPV analysis in their selection of this economy?

anon73846

yes anon70636 you are correct about that. it is more like if government controlled that type of economy, than government is traditional economy, is that maybe what your were asking sharan101? And as to anon35960, this economy is used in more of a developing country. Some parts of Asia and in different parts of Europe.

For anon35534 how can you cite a picture of this, for it is only a type of economy? Maybe a picture as to where they use this type of economy would help you. ~Just another wiseGEEK here. Have a nice day!

anon72998

How does the traditional system answer the three economic questions? which are what to produce? how to produce? For whom to produce? please i need your help.

anon70636

Seriously, Sharan101? A traditional economy is just that - a type of economy. It is not any type of government!

anon69698

what are more examples and definitions for this particular topic traditional economy? write and inform some more please!

anon35960

what countries are using the traditional economic system?

anon35534

cite a picture of a traditional economy.

Sharan101

what type of government is traditional economy?

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