Imagine at the moment, you have to exchange your smartphone for something of equivalent value that you need right now (not money), what will that be? Of course, your smartphone is gone for good. So, think it through and through.
It is funny and at the same time hard. This is the traditional economic system simplified. The system was used centuries ago for the exchange of goods and services, although still in use in some communities and countries.
Traditional Economy System Definition
A traditional economy is usually based on bartering, fishing, hunting, gathering, trading, and farming. The traditional economic system is based on customs, history, and commonly held beliefs. This tradition influences economic decisions, such as production, distribution, exchange, consumption, savings and investment of resources.
Societies with traditional economic systems depend on agriculture, fishing, hunting, gathering or combining them. They use bartering in place of money i.e exchange a commodity for another commodity of the same value, depending on their want.
How The Traditional Economy System Works.
Firstly, there is no such thing as paper currency. All buying and selling are done on the basis of goods and services of equivalent relevance. For example, giving your car in exchange for a house or your mobile computer for a trip ticket.
The traditional economic system gives the absolutely correct answer to the three basic questions of production, which are; what are the needed goods and services to be produced, how to go about the production process, and who the consumers of these goods and services are. The product, process, and consumption are determined by customs and beliefs.
In a traditional economy, the number of goods and services produced are kept in check, they have little or no excess goods. The traditional economic system does not encourage wastage of goods produced and empowers maximum use of the goods. People often inherit their parents’ abilities or jobs, allowing them to carry on conventions, traditions, and beliefs to next generations.
Characteristics Of A Traditional Economy System
The traditional economy system has quite a number of insightful characteristics that further explain how the system works based on customs, traditions, and beliefs.
- A traditional economy system is a good example that explains how geography, culture, and beliefs influence the way a community or society lives. They work with the present, “what do we need now?” mentality.
- A traditional economy system is an epitome of the ancient means of production, such as farming, fishing, hunting, and gathering.
- Traditional economy systems do not make use of paper currency. Instead, it makes use of the olden but golden “trade by barter” system.
- In the traditional economic system wastage is prohibited. They make use of the product and byproduct of every production process, e.g the fibre from the palm kennel,after palm oil production, is used as fuel.
- Goods and services are not produced with selfish intentions but to meet the respective needs of the consumers. The goods and services are produced to satisfy customers, not the producers.
- Traditional economies tend to have very little or no technology because they focus on meeting the present needs of the people rather than focusing on profit or production.
- Traditional economies are most times less specialised. People often do a variety of tasks and do not seek to be experts in any one area.
Examples Of Traditional Economy System
- Subsistence Farming Societies
- Traditional Fishery
- The Open Field Farming System
- Bartering Financial System
- Gift Culture
- Hunting And Gathering
Subsistence Farming Societies
Subsistence farming is a type of farming in which farmers grow crops and raise rare animals because they want to eat them themselves, not sell them.
In the traditional economy, subsistence farmers exchange extra crops and livestock in order to get other necessities, such as clothing, tuition fees, and medical supplies. However, their primary goal is to sustain self-sufficiency.
It involves catching of fishes and other seafood using local techniques such as; hand gathering, netting, or trapping for personal consumption.
Some traditional economies use local fishing to sustain their needs and that of their family. They use fish in exchange for other basic necessities and also pass these skills to their offspring.
The Open Field Farming System
The open field system of farming is one of the examples of the traditional economy system used in Europe during the middle age and lasted through the twentieth century. The open field system of farming involved hundreds of acres, with farmers given a strip of land to cultivate under the cover of crop rotation. In turn, these farmers give a portion of their harvest to the landowner and keep the remainder for exchange and consumption with their families.
Bartering Financial System
Bartering is one of the elements of a traditional economy. It is a cashless economy system that involves the exchange of goods and services between one or more persons, communities, organization or country without the use of money. For example, a community may trade an oil well for clothing.
One of the primary features of a traditional economy is that it does not seek profit. Rather it is designed to meet the daily needs and interests of the community members.
Gift culture is a financial economy system that does not trade goods and services but instead gives out goods and services with no agreement on payment.
Individuals and communities give out gifts to each other when they are experiencing any hardship which they can be of help without expecting anything in return. This culture is based on the ideology that when the giving party gets to face hard times, the receiving party will in turn come to their rescue.
Hunting And Gathering
Hunting and gathering is one of the oldest ways through which humans used in making a living. It involves searching for food and other provisions within a given area.
Many traditional economies depend on hunting and gathering. Hunters and gatherers rely on hunting wild animals, fish and gathering wild fruits and vegetables, berries and mushrooms, rather than domesticating animals or growing crops.
Traditional economic societies that rely on hunting and gathering have deep knowledge of their local environment and the plants and animals that live there and this knowledge is often passed down from one generation to another, through oral traditions; which accounts for why people inherit their parents’ jobs in the traditional economic system.
Countries With Traditional Economy System
Bhutan is a landlocked (isolated) country in the Eastern Himalayas, located in South Asia between India and China.
It is known for its steep mountains, deep valleys and unique philosophy; Gross National Happiness, that guides its development strategy.
Bhutan’s economic system is the traditional economic system which is based on subsistence farming, animal husbandry and forestry, which is a source of livelihood for over sixty percent of the population.
Haiti meaning “land of high mountains”, is a Caribbean country located between the Caribbean sea and the North Atlantic ocean. It is best known for its rich fable.
Haiti might have lost a lot to the 2010 earth quake, but many of its landmarks, including its economy system, are still intact. It is a country that has a largely traditional economic system in which about 70% of the population living in the rural area relies on subsistence agriculture.
The most debated topic among economists is that traditional economic systems are more effective than capitalist economies as it provides people with multiple opportunities and empowers them.
For example, in a traditional agriculture society, every family member may contribute to the farm in some way. In contrast, in a capitalist economy, people earn from buying and selling shares, and running firms which brings about innovation and wealth creation.
The traditional economic systems are less productive because they limit people’s ability to innovate and bring about technology based developments. This is a common reason why countries with traditional economy system should switch to a capitalist one. Traditional economic systems are also often criticized for being rigid to change and resistant to new revolution and development.
What is the goal of a traditional economy?
The main aim of the traditional economy system is to keep the culture, beliefs, and tradition of a community or family alive by making use of old economic activities and the barter system
What are the advantages of the traditional economy?
1. Preserve Culture And Values.
Traditional economic systems help to preserve the skill, culture and custom of respective communities, tribes, and families.
2. No Wastage Of Goods:
In the traditional economy, goods are produced to meet the needs of the community, tribe, or family, there is no surplus.
3. Have Scope For Evolution:
The traditional economic system’s structure has the potential to adjust to traits of different economic structures. In actuality, all the modern economic systems have evolved out of the traditional system.
What are the disadvantages of the traditional economy?
Due to no surplus production of goods, people may starve from food shortage. Drought and other natural disasters can lead to famine which in turn cause starvation.
2. Risk Of Exploitation:
Developed economies can sometimes take advantage of the bartering system and often invade underdeveloped economies to exploit their land and natural resources.
3. Depletion Of Natural Resources:
Economies that are highly dependent on natural reserves for food, shelter, and clothing risk natural resources becoming scarce because they consume faster than they replenish.
4. Poor Medical Facilities
Due to lack of technological advancement, communities with traditional economic systems depend only on the use of local herbs in health treatment which are not effective in treatment of terminal diseases.
- Restricted Global Interaction
- Bounded Growth Opportunities
- Lack of Technological Advancement
- www.thebalancemoney.com – Definition of the traditional economy system.
- www.thestreet.com – Characteristics of the traditional economy system.
- www.flushingschool.org – How the traditional economy system works.
- www.helpfulprofessor.com – Examples of traditional economy systems.
- www.worldpopulationreview.com – Countries with traditional economic systems.
- www.wallstreetmojo.com – Goal of the traditional economy system.
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