What is a traditional economy? Learn about traditional economy, and the characteristics, advantages, and disadvantages of the traditional economy through examples.
Updated: 11/21/2023
Traditional Economy | Definition, Characteristics & Advantages
Table of Contents
- What is a Traditional Economy?
- Characteristics of Traditional Economy
- Advantages of Traditional Economy
- Disadvantages of Traditional Economy
- Examples:
- Lesson Summary
Frequently Asked Questions
What is the meaning of traditional system?
A traditional economy is an economic system that is rooted in a culture, location, customs, tradition, and needs rather than being centered around making a profit. It usually consists of small groups where the production of goods is done to sustain the group.
What is an example of a traditional economy?
The Inuit tribes in northern Canada, Greenland, and Alaska are examples of traditional economies. Their way of life is based on hunting and adapting to the cold, harsh climates.
How does a traditional economy work?
A traditional economic system works by each member of the economy having a specific skill or role which helps the overall group. Members produce what they need and barter for other goods using what they have left.
Who controls a traditional economy?
There is no central control of a traditional economy. The economy is based on the needs and skills of the group and what is needed for the group to survive.
What are the characteristics of a traditional economy?
Traditional economies have several characteristics that are unique compared to modern economies. They are geographically and locally based, they have a bartering system, they have little to no surplus or goods and they don't waste any parts of goods they produce.
What are characteristics of a traditional economy?
Traditional economies have several characteristics that are unique compared to modern economies. They are geographically and locally based, they have a bartering system, they have little to no surplus or goods, and they don't waste any parts of goods they produce.
Table of Contents
- What is a Traditional Economy?
- Characteristics of Traditional Economy
- Advantages of Traditional Economy
- Disadvantages of Traditional Economy
- Examples:
- Lesson Summary
There is historical site in Massachusetts called Old Sturbridge Village where visitors can go and see what it was like to live and work in colonial times. While they are there, they will get a lesson on the system of bartering that was common to the times. People made things and then traded them for other things they needed. Even when they used currency, they used it based on the needs and culture of the community. People bought things they needed for survival or for their customs. People made things to meet the needs of the community. What does Old Sturbridge Village have to do with economics, and what is a traditional economy?
The traditional economy definition is an economic system that is rooted in a culture, location, custom, tradition, and need rather than being rooted in making a profit, as in capitalism. There are many significant differences between a traditional economy and a modern economy, but the best way to understand the essential difference is to differentiate the motivation behind the two; essentially the why with regards to selling and producing.
- Traditional Economy's Answer to Why – To produce something that others need in order to get what I need and in order for the group to survive.
- Market Economy's Answer to Why – To produce something that others need or want in order to make a profit.
Notice how the two answers are almost identical, but the addition of want and the change to make a profit are enough to make a massive difference.
Beyond the main purpose being very different, there are also other differences between a modern economy and a traditional economy. The goods that people produce and how they distribute these goods is based on the individual community that is using the system. In a cold climate, firewood would be a major product that would be a necessity for the community, while firewood wouldn't be nearly as important in warm climates.
 |
To unlock this lesson you must be a Study.com Member.
Create your account
You must cCreate an account to continue watching
Register to view this lesson
Are you a student or a teacher?
Create Your Account To Continue Watching
As a member, you'll also get unlimited access to over 88,000 lessons in math, English, science, history, and more. Plus, get practice tests, quizzes, and personalized coaching to help you succeed.
Get unlimited access to over 88,000 lessons.
Try it now
It only takes a few minutes to setup and you can cancel any time.
Already registered? Log in here for access
BackResources created by teachers for teachers
Over 30,000 video lessons
& teaching resources‐all
in one place.
I would definitely recommend Study.com to my colleagues. It’s like a teacher waved a magic wand and did the work for me. I feel like it’s a lifeline.
Jennifer B.
Teacher
Back
Your next lesson will play in
10 seconds
Traditional economies might seem like a thing of the past, but in many developing countries and especially in rural areas, communities still use traditional economic structures. But traditional economies have to have certain characteristics that make them different from other economies and those characteristics are very different than what most people living under capitalism are used to. The following are some of the key characteristics of a traditional economy.
- Local Economy – Traditional economy characteristics center around the fact that most traditional economies are local economies. That means that the economy is based on a small group like a colony, tribe, village or even a singular family. In modern times, most traditional economies are family-based or tribe-based, while in the past they could be bigger and expand to villages and towns. Being a local economy means that the goods that a group produces are based on the group's needs, customs, and beliefs.
- Bartering – Traditional economies don't generally use a monetary system, but instead use a barter system. Bartering is the act of trading one good for another good of agreed-on equality in value. In an agricultural society, a fisherman would use his daily catch to trade with other members of the group for goods that he or his family doesn't produce, like religious items, crops, or materials needed for daily life, like soap or clothing.
- No Waste – In modern economies, companies package products in boxes or plastic, and the consumer throws those packages away, so that the package are only ever used for display. Even people eating a plate of chicken wings on Super Bowl Sunday will throw away the bones at the end of the night. In a traditional economy, the community uses all of the products and by-products of production. An example of this occurred in the nomadic Sioux tribe in plains of North America. They would follow the buffalo herds and when they killed a buffalo, they would use every part for food, clothing, tools, and cultural items.
- Dependent on Geography – Some traditional economies exist in groups that remain in one place, while others are part of nomadic groups that follow either animals or seasonal changes. Regardless of which type of group they are, traditional economies are based on their geography. The physical geography dictates the materials the people can use and the animals they can hunt or fish. Geography dependency is also based on climate. The climate of the geographical area determines what clothing they need to make, what type of shelters they need to build, and what types of crops they can grow.
- Traditional Production Methods – Traditional economies don't utilize tractors and robots. They employ traditional methods of production without industrial sources of power. Basic crop growing, fishing, bow and spear hunting and the gathering and hand-processing of natural resources are the prime way that goods get produced in a traditional economy.
- No Surpluses – Surpluses are different than waste. Waste is when parts of a good go unused and are wasted. In capitalist economies companies produce more goods than will ever be used at one time. Sometimes these products go to waste, but there is also ample storage, refrigeration and preservatives. A consumer can purchase multiple of a single item and it will remain usable or edible for weeks, months, or years. In traditional economies, there is rarely ever a surplus because most of the goods would spoil. The methods of production they use are often arduous and time-consuming, making it too much trouble to produce more than what they need.
 |
To unlock this lesson you must be a Study.com Member.
Create your account
In most cases it is very hard to compare a traditional economy to a capitalist economy side by side, but there are some advantages to a traditional system that lack in the capitalist economy.
- Environmentally Sound – Traditional economies of today do nothing to contribute to the pollution and devastation of the climate like the modern economy does. They don't burn fossil fuels or clear cut forests. They take from nature what they need and they use it all. There is no chemical waste rotting in a landfill or smoke stacks pumping harmful fumes into the atmosphere.
- Sense of Community – In traditional economies, everyone has a role to play. There is no one who takes without giving. They are all aware of what needs to be done because unlike a modern economy, shirking responsibilities will lead to death and the collapse of the group.
- Skills and Purpose – Along with a sense of working together as a community, traditional economies promote the importance of learning a specific skill and having that skill be meaningful and important. Every person in a traditional economy is needed and cannot be replaced instantly. Their role or job cannot be simply eliminated either. In modern economies, there are countless jobs where people can be easily replaced or the job simply eliminated and life still moves on.
To unlock this lesson you must be a Study.com Member.
Create your account
Again, although the disadvantages of the traditional economy may seem clear, it is important to keep in mind while comparing it to a capitalist economy that the two economic structures are very different to each other, and each has its own advantages as well.
- Work-Life Balance – As modern economies automate production, people work remotely, and processes get easier, there is a big emphasis on a better balance between work and non-work life. Traditional economies have no balance between the two. There are no weekends and vacations at the beach. Each and every day is a battle to survive and provide for the group.
- Efficiency – Modern economies are efficient in terms of production. Fishing is done using machines, agriculture uses tractors and combines, and companies are able to manufacture textiles on a huge scale. Traditional economies are not as efficient and that is the primary reason for the lack of work life balance.
- Limited Opportunities – When children enter school in capitalist economies they are told they can do almost anything when they grow up. That is not the case in traditional economies. There are very limited choices of skills and jobs to work. Most of the time, the children in the group learn the skills of their parents and take over when they get old enough.
To unlock this lesson you must be a Study.com Member.
Create your account
In almost every part of the globe there were countless examples of traditional economies at one time. But for this lesson it's important to understand that there are still traditional economies in the 21st century that are alive and functioning in almost the same way they have for centuries.
- Inuit Tribes – There are Inuit tribes found in northern Alaska and Canada that are still living in traditional economies. They are based on fishing and hunting and produce little to no agriculture due to the climate they live in. They are a perfect example of an economy that is modeled after the geographical area they live in.
- Amazonian Tribes in Brazil – Brazil is a massive country and has a large economy, but much of the country is remote and inaccessible to the outside world and subsequently the outside economy. These native tribes live off the land and barter with each other for goods.
- Haiti and Bhutan – While most traditional economies are found in small tribes or villages within a larger country, there are two countries in the world that are officially recognized as traditional economies. Haiti is a country where almost three quarters of the population live rurally and almost all goods are used within Haiti to provide for its population. Bhutan is considered a traditional economy although they are growing and expanding. They are primarily an agricultural economy, but they have a currency that aligns with the Indian rupee. They have begun to produce electricity through hydroelectric dams and sell the electricity to India.
To unlock this lesson you must be a Study.com Member.
Create your account
A traditional economy is an economic system that is modeled around culture, beliefs, customs, geography, and needs rather than focusing on profits. Traditional economies were commonplace several hundred years ago, but they have diminished over time. There are several key characteristics of a traditional economy including a system of barter, being local and modeled on the geography of the area, producing little waste, and having no surpluses.
There are some advantages of traditional economies which include the feeling of a strong and tight-knit community, the lack of pollution and environmental damage, and each person's role being essential to the group's survival. The disadvantages are the lack of a work-life balance, poor production efficiency, and lack of a variety of jobs and skills. There are still many active traditional economies in the world today including Inuit tribes in northern Canada and Alaska, Amazon tribes in Brazil and the countries of Haiti and Bhutan.
To unlock this lesson you must be a Study.com Member.
Create your account
Video Transcript
What Is a Traditional Economy?
Let's imagine you and your spouse decide to take a vacation to some far off destination. You want to experience a place where the people have strong customs and traditions, and monetary status is not significant. What you are looking for is a place that has a traditional economy.
So, what exactly is a traditional economy? Well, a traditional economy is one that is built around the way a society lives. The goods and services are determined based on the livelihood of the people and their beliefs.
Characteristics of a Traditional Economy
Now let's look at some other factors that contribute to this type of economy.
- Traditional economies are often based on one or a few of agriculture, hunting, fishing, and gathering.
- Barter and trade is often used in place of money.
- There is rarely a surplus produced. In other words, most of the goods and services are fully used.
- Often, people in a traditional economy live in families or tribes.
- Societies may follow herds of animals in order to hunt and sustain those in the traditional economy.
- Many people progress from hunters to farmers where they can place permanent structures and start a society.
Advantages of a Traditional Economy
You may be asking now, what are the advantages to this type of economy? Why does this type of economy work for certain areas of the world? Well, for starters, each person in a traditional economy understands what they are supposed to do or what their job is. Second, everyone is aware of the resources and how they will be distributed among the group. Next, each person understands what they will receive when doing their jobs and participating in a traditional economy. Lastly, there is less destruction to the environment because many of these traditional economies farm and use the land in a positive manner.
Disadvantages of Traditional Economies
While there are several advantages to a traditional economy, these economies are not without their disadvantages. Because these economies rely on hunting, fishing, gathering, and the land in the form of farming, when the weather changes, the economy becomes jeopardized. Also, if they are not able to find animals to hunt or fish to catch, people can starve because they don't have the goods needed to survive.
Example of a Traditional Economy
So, how can this information be applied to real life? Well, let's look at an example to help explain this type of economy.
Bill, his son, and his grandchildren live in a developing country. Where they live, there are not any stores, like many of us are familiar with. So they have nowhere to purchase the things they need to survive. Instead, Bill and his family have to gather their own resources.
Because they are in need of food for the long winter, Bill and his family venture out into the wilderness in search of animals to hunt. This will not only be a bonding experience but a way to teach the traditions and customs of the society to the younger generation. Bill's grandchildren will be learning how to hunt for the first time in order to survive and provide for their families.
Bill and his family have a successful hunt. The family then distributes the meat to all of those in need back home within the traditional economy and can use it to trade for other items they will need. For instance, they can trade the meat that they've hunted for vegetables from the local farmer.
Lesson Summary
A traditional economy is a place where the people have strong customs and traditions and monetary status is not significant. People in these economies survive using skills learned from past generations such as hunting, fishing, farming, and gathering.
Without a true money system, people in a traditional economy often use bartering and trade as a means to obtain the needed resources to live. While traditional economies face many challenges, such as weather and finding enough animal resources to survive off of, their instinct to provide for others in the society and fulfill designated roles helps build strong bonds with lasting skills that help them live off the land.
A Quick Glance at a Traditional Economy
- Traditional economies are those in which customs and traditions are more important than money.
- Traditional economies are often based on hunting, fishing and gathering or farming.
- Often in a traditional economy, there is no surplus and no resources, and bartering is used to exchange for needed goods.
- The benefits of a traditional economy include less environmental destruction and a general understanding of the way in which resources will be distributed.
- Traditional economies are susceptible to weather changes and the availability of food animals.
Learning Outcomes
Access this lesson on traditional economies for the purpose of preparing to:
- Write the definition of 'traditional economy'
- Express knowledge of its characteristics
- Discuss the advantages and disadvantages of traditional economies
- Apply these facts to a real-life situation
To unlock this lesson you must be a Study.com Member.
Create your account
Register to view this lesson
Are you a student or a teacher?
Unlock Your Education
See for yourself why 30 million people use Study.com
Become a Study.com member and start learning now.
Become a MemberAlready a member? Log In
BackResources created by teachers for teachers
Over 30,000 video lessons
& teaching resources‐all
in one place.
I would definitely recommend Study.com to my colleagues. It’s like a teacher waved a magic wand and did the work for me. I feel like it’s a lifeline.
Jennifer B.
Teacher
Back
Traditional Economy | Definition, Characteristics & Advantages
Related Study Materials
Explore our library of over 88,000 lessons
Browse by subject