What is a traditional economic system?

Written by devra gartenstein
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What is a traditional economic system?
A traditional economy relies in part on grazing herds of animals, such as goats. (mountain goat,goat,mountain,mammal,animal,nature,t image by Earl Robbins from Fotolia.com)

A traditional economic system is one that is built on time-tested modes of exchange and commerce, such as agriculture and direct trade with community members and neighbours. According to EconomyWatch.com, 400 million people still use traditional economic systems, as opposed to contemporary systems such as the market economic system.


The history of traditional economic systems is the story of organic modes of exchange in closely knit communities. This was the dominant mode of exchange since Neolithic (early agricultural) times, and perhaps even before. In developed nations traditional economies have been largely replaced by market economies and industrial economies, but traditional economies are still the norm in many developing regions.


Property in a traditional economy is almost always passed down within family lines, rather than bought and sold. Methods of earning a living tend to be stable and consistent as well, with individuals from farming families becoming farmers and individuals from grazing families becoming herders.


Most of the exchange taking place in a traditional economy occurs directly between the people who produce the goods and the people who use them. This type of trade has recently been dubbed "direct trade." It represents a radical concept in the modern world because it involves circumventing middlemen, but it is actually a return to a traditional system, albeit with fewer geographical limitations. Direct trade in traditional economies builds and cements relationships, and provides accountability: if you are not satisfied with the quality of an item, you can complain directly to the person who made it.


Most people living and working in traditional economies don't have jobs per se, but rather do whatever work is necessary to provide for their own and their family's basic needs. They produce many of their own staples, rather than purchasing them. Although this may sound like hard work, Marshall Sahlins, in his seminal anthropological work, "Stone Age Economics," writes that individuals in indigenous cultures tend to only work an average of four hours per day.


Individuals living in traditional economic systems tend to direct their activities toward meeting their own and their families' basic needs, rather than generating a surplus and trading it for unnecessary consumer products. This is known as a "subsistence economy." Although we think of subsistence as the state of barely eking out a living, it is also an orientation which sees the act of meeting basic needs as sufficient in itself, rather than a mere step toward having enough resources to start accumulating merchandise.

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