Traditional Economic System

What It Means

Despite the extreme variety of human cultures throughout history, from Cro-Magnon cave dwellers to Ancient Egypt to twenty-first century America, there have only been three basic ways to organize economic life (the production, distribution, and consumption of goods and services in a society). One way is to rely on tradition to decide what goods and services will be produced, how they will be produced and distributed, and for whom they will be produced and distributed. Another way is to defer to some central authority figure who directs all members of society to follow his or her orders in regard to these issues. Finally, a society can allow market forces, such as supply (the amount of any good or service that a seller is willing to sell at a given price), demand (the amount of any good or service that buyers are willing to buy at a given price), and the desire for profit to shape its economic life. Of the three forms of economy, the first, called a traditional economic system, has been by far the most common over the course of history.

Societies relying on tradition to shape their economic life existed 10,000 years ago, and they exist today. As far as anthropologists (those who study humans and cultures) and economists know, traditional economic systems have not changed much during that time. The material needs of such communities are typically provided for through hunting and gathering or through agriculture. Questions about which members of the community get which portions of what has been killed, gathered, or harvested are solved according to rules derived from the individual society’s traditions.

When Did It Begin

There is no way of knowing the details of the earliest traditional economic systems because the activities of the first human societies are beyond the scope of history, but human societies have no doubt sustained themselves in this way since the first human communities appeared on earth. Certainly during prehistoric times most human societies would have organized their economic life in this way. Experts are unsure of exactly why or when human societies began moving away from tradition-based economies and toward the adoption of command economic systems. Many of the best-known early civilizations, such as those in ancient Mesopotamia, Egypt, and Greece, were command economies in which economic decisions were made by rulers. The third form of economic system, the market economy, did not begin to take hold until around the sixteenth century.

Economics as a field of study came into being in the eighteenth century, and it has always primarily focused on market economic systems. Therefore economists have not typically addressed traditional economic systems at great length, studying them primarily as a way of better understanding the characteristics of market economies.

More Detailed Information

The fact that there have only been three basic economic configurations across all cultures since the dawn of humanity suggests that the problems confronting human communities have been remarkably consistent over time. Indeed, all societies must solve the problem of satisfying their members’ needs and wants in a way that ensures the survival of the group. To answer this challenge successfully (that is, to survive and achieve the group’s goals), a society must organize the actions of its members effectively.

This organization takes place, economically speaking, in two particular areas: production and distribution. Any society must produce the goods and services that its people need, and it must then distribute those goods and services among its people. These processes lead to three clear questions. What will be produced? How will it be produced and distributed? For whom will it be produced and distributed? The answers to these questions tell us what form of economic system a society employs.

In a traditional economic system, the three questions are answered according to tradition. If a primitive society has always migrated to follow deer herds, hunting deer and gathering berries and nuts along the way, it will continue to answer the “what” and “how” of production in this way for as long as the society itself survives. If that society has always distributed half of a given deer to the person who killed it and divided the remaining half equally among the rest of the community, and if it has done so in a ceremony honoring the hunter, then it will probably continue to answer the “how” and “for whom” of distribution in this way. These rules, established by tradition, are enforced by social pressure. The community bestows its approval on those who follow the codes of tradition and shows its disapproval of those who do not.

One of the key features, then, of a traditional economic system is the fact that there is no concept of private property. A hunter may get a larger portion of a deer he has killed, but the community determines this. Tradition compels him to present his gains to the community in the first place rather than allowing him hoard or sell them. Another key feature of traditional economic systems is that they usually produce and distribute goods at a level that ensures no more than subsistence, or survival. In other words the community only kills enough deer and gathers enough nuts and berries to survive. Is this subsistence condition a result of how difficult it is to produce and distribute food in this way, or is it a conscious choice not to consume more than necessary? Anthropologists have not resolved this question.

Experts agree that, whatever the comfort level of those living in primitive communities, tradition-based systems do not lend themselves to change or economic growth. Social roles are extremely rigid in these societies, so individuals are largely restricted by the circumstances of their birth. Likewise, because the problems of production and distribution will continue to be solved in the same ways they have always been solved in a given primitive community, the quantity of goods and services produced will likely remain unchanged (or it will only change in a way that accommodates a varying number of community members). Such societies do not promote intellectual development, and they do not tend to produce technological advancements.

Traditional economic systems, however, promote community strength more than the two other economic systems do. The well-defined bonds between individuals provide comfort and guidance, and crime is rarely a problem. Additionally, communities that rely on tradition to guide their economic life tend to live in harmony with the environment; this is because they merely subsist off the earth rather than attempting to control or profit from natural resources.

Recent Trends

In most countries in the twenty-first century, traditional economic systems have been replaced by command economic systems, market economic systems, or a combination of the two. There are, however, parts of Africa, Asia, and South America where tradition guides economic life. The people living in these communities are among the poorest in the world, and they lack the basic resources of education, health care, and sanitation that people in developed parts of the world enjoy. Additionally, their ancient ways of life are increasingly threatened by the economic development that surrounds them. As members of primitive communities within developing countries move to towns and villages and become citizens and taxpayers, they might improve their own material living conditions, but they diminish the chances for survival of the societies they leave behind. Likewise, as outsiders increasingly establish trading relationships with primitive communities, the communities themselves tend to become more like the outside world. If the world economy continues to develop according to the patterns of the twentieth and early twenty-first century, traditional economic systems will likely become even rarer, and some of the oldest societies on earth will cease to exist.