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What is a Traditional Economy: Understanding Its Role and Functioning

Editorial Team
Updated: May 16, 2024
What is a Traditional Economy?

In the intricate tapestry of global economics, what is a traditional economy? It's a system deeply rooted in cultural heritage, where customs and long-standing beliefs are the bedrock of production and exchange. According to the United Nations, traditional economies are predominantly found in rural areas, where agriculture remains the cornerstone of livelihood for a significant portion of the world's poor—nearly 80% in sub-Saharan Africa. These economies operate on the principles of barter and trade, eschewing modern financial systems. The United Nations Development Programme highlights that in these settings, surplus is rare, and any excess is often allocated to community leaders or landowners, reflecting a subsistence lifestyle that supports just over a quarter of the global population. This economic model, while less prevalent in the face of globalization, continues to influence the lives and choices of millions, offering a window into the enduring power of tradition in shaping economic landscapes.

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.

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.

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.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Editorial Team
By Editorial Team
Our Editorial Team, made up of seasoned professionals, prioritizes accuracy and quality in every piece of content. With years of experience in journalism and publishing, we work diligently to deliver reliable and well-researched content to our readers.
Discussion Comments
By anon293018 — On Sep 23, 2012

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

By anon153300 — On Feb 16, 2011

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

how will it help students improve their business studies skills?

By anon146274 — On Jan 25, 2011

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

By anon116083 — On Oct 05, 2010

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

By anon109057 — On Sep 05, 2010

Does nicaragua have a traditional economy?

By anon79847 — On Apr 24, 2010

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

By anon73846 — On Mar 29, 2010

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!

By anon72998 — On Mar 25, 2010

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.

By anon70636 — On Mar 15, 2010

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

By anon69698 — On Mar 09, 2010

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

By anon35960 — On Jul 08, 2009

what countries are using the traditional economic system?

By anon35534 — On Jul 06, 2009

cite a picture of a traditional economy.

By Sharan101 — On Oct 29, 2008

what type of government is traditional economy?

Editorial Team
Editorial Team
Our Editorial Team, made up of seasoned professionals, prioritizes accuracy and quality in every piece of content. With years of experience in journalism and publishing, we work diligently to deliver reliable and well-researched content to our readers.
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