Definition: A traditional economy is a society that relies on customs, history, and time-honored beliefs. They guide economic decisions such as production and distribution. Traditional economies depend on agriculture, fishing, hunting, gathering, or some combination of the above. It uses barter instead of money.
Most economists and anthropologists believe all other economies got their start as traditional economies. They expect them to evolve into either a market, command, or mixed economy over time.
5 Characteristics of a Traditional Economy
First, traditional economies center around a family or tribe. They use traditions gained from the elders' experience to guide day-to-day life. That's why they base economic decisions on these traditions.
Second, a traditional economy exists in a hunter/gatherer and nomadic society. They cover wide areas to find enough food to support them. They follow the herds of animals that sustain them. As a result, they migrate to follow the seasons. That could be either the winter/summer or the wet/dry season. These nomadic hunter/gatherers usually compete with other groups for scarce natural resources.
There is little need for trade since they all consume and produce the same things.
Third, most traditional economies use all they can produce. There is rarely surplus or leftovers. That makes it unnecessary to trade or create money.
Fourth, traditional economies that do trade rely on barter. It can only occur between groups that don't compete.For example, a tribe that relies on hunting exchanges food with a group that relies on fishing. In these cases, metal coins wold be heavy to carry and unneeded. That's because they just trade meat for fish.
Fifth, traditional economies start to evolve once they start farming and settle down. They are more likely to have a surplus, such as a bumper crop, that they use for trade. When that happens, the groups create some form of money. That facilitates trading over long distances.
Traditional Mixed Economies
When traditional economies interact with market or command economies, things change. Cash takes on a more important role. It enables those in the traditional economy to buy better equipment. That makes their farming, hunting, or fishing more profitable. When that happens, they become a traditional mixed economy.
Traditional economies can have elements of capitalism, socialism, and communism. It depends on how they are set up. Agricultural societies that allow private ownership of farmland incorporate capitalism.Nomadic societies also practice socialism if they distribute production to whoever best earned it. In socialism, that's called "to each according to his contribution." That would be the case if the best hunter, or the chief, received the choicest cut of meat or the best grains. If they feed children and the elderly first, they're adopting communism. It says each according to his needs."
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