The Definition, Aspects and Example of Traditional Economy

Although the fundamental aspects of traditional and capitalist economies (output, labour, and trade) are similar, the contrast widens when actual examples of traditional economies are considered. A story needs to be told about a society where cows serve as money and people relocate literally in pursuit of better economic conditions.

The phrase “Traditional economy” initially seems to relate to the market-based US economy that Americans have been accustomed to for centuries.

A traditional economy, on the other hand, has a totally different definition, one that is focused on local history, culture, and customs rather than money, profits, and losses.

A traditional economy is one in which the creation of goods and services is significantly influenced by the local customs, traditions, and beliefs.

A traditional economy is one that is built on how people live, to put it another way. The people’s means of subsistence determine the goods and services.

The majority of traditional economies are found in emerging markets and developing nations. They are frequently observed throughout Latin America, Asia, and Africa. Small-scale traditional economies are also present in developing nations all over the world.

Economists and anthropologists agree that all other economies started out as traditional ones. They therefore forecast that traditional economies will eventually transform into market, command, or hybrid economies. In a market economy, the laws of supply and demand govern how goods and services are produced.

In a command economy, the central authority controls all economic choices. The government or a collective is the owner of the land and the means of production. A mixed economy combines the characteristics of the other three economies.

The Aspects of Traditional Economics

In growing second- and third-world nations, particularly in Africa, Latin America, Asia, and the Middle East, traditional economies are most prevalent in rural areas.

When describing a traditional economy, it is helpful to contrast it with more prevalent major world economies like capitalism, socialism, and communism.


The production and distribution of goods and services are governed by the laws of supply and demand in a free-market economy known as capitalism. Private businesses or self-interested individuals are the owners of the means of production.

Traditional economies lack the abundance of capital, natural resources, and labour that is prevalent in capitalist economies. Capitalist economies also depend on a strong sense of entrepreneurship.


Socialism is an economic system in which all members of society own the same amount of the means of production, including labour, capital goods, and natural resources. Usually, a democratically elected government, a citizen cooperative, or a public company in which everyone owns shares grants and controls that ownership.

The government makes an effort to spread the benefits of the economy equally in order to prevent income inequality. Socialism is therefore based on the economic tenet of “everyone to his own contribution.”


Communism is an economic system in which the state owns the means of production. Even if the workforce is not officially owned by the government, central economic planners designated by the government give orders on where people should work.

For this reason, a “command” economy is a description of communism. The tenet of “from everyone according to his abilities, to each according to his needs,” as stated by German philosopher Karl Marx, serves as the foundation of the communist economy.

Depending on how they are governed, traditional economies can display traits of capitalism, socialism, and communism.

In an agricultural economy where people can own their own farms, capitalism is present. A nomadic hunting tribe that practises socialism allows its most successful hunters to keep the majority of the meat. A similar group prioritises feeding children and the elderly meat and practises communism.

Traditional Economy – Examples

A nomadic tribe called the Oribu inhabits the Brazilian Jungle Forest. They have been researched extensively to understand how their economy functions and how resources are distributed among the tribal members.

The most recent census showed that there were 1,000 people living in the neighbourhood. According to this study, they are mostly an agricultural community that is skilled in choosing the best areas for the development of particular fruits and products. They are also skilled fisherman.

They have a custom of distributing all they haul in from their daily fishing excursions to the centre of the camp. A person who goes by the name “The Ancient” blesses the meal and offers a prayer to a local god for the tribe’s prosperity.

Then everyone moves a step towards the centre and starts to eat as much as they need. No one is allowed to take more than is absolutely necessary according to their tradition. They have a traditional economy, therefore neither commerce nor distribution require the use of money.

The Benefits of Traditional Economy

  1. Strong, close-knit communities supported by traditional economies enable each member to participate to the production or maintenance of goods and services.
  2. Traditional economies promote a climate in which every community member is aware of the risks and the part they play in supporting the traditional economy. Future generations receive this knowledge and awareness as well as the skills that were acquired as a result of this worldview.
  3. Traditional economies preserve a healthy living environment and do not cause industrial pollution. There is no waste or inefficiency in the production of the things required for a community’s survival in traditional economies since they simply produce and consume what they need.

Traditional Mixed Economies

When traditional economies combine with market or command economies, things change. The value of money increases. It enables people in the traditional economy to buy more advanced machinery. As a result, their farming, fishing, and hunting enterprises are more profitable. They then develop a mixed economy in the traditional sense.

Traditional economies can be socialistic, capitalist, or communist. Everything depends on how they are set up. In agricultural nations that permit private ownership of lands, capitalism is present. Nomadic tribes engage in socialism when they distribute produce to those who worked the hardest and deserved it.

That would be the case if a farmer presented the best grain or the best cut of meat to the top hunter, or let’s say the local leader. An economy is adopting communism and putting people’s needs first if it places a high priority on feeding the elderly and children.

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