It is tempting to think of an economy in terms of how much money people have, or how much money a country has. After all, modern economies are most commonly measured in terms of GDP (gross domestic product), GNP (gross national product), and per capita income. But an economy is more a pattern of behavior across a large group of people than it is an index of money earned.
For example, when people talk about a market economy, they are referring to a system in which the production of goods is directly correlated with what people want and what they are willing to pay for those goods. Market economies operate on the premise that there is no sense in producing goods that people do not want or producing goods in a quantity above what people want. People’s behavior (spending patterns, desires, needs, et cetera) determines the products that suppliers provide.
So when we talk about different economies, such as a communist, socialist, or capitalist economy, we are really talking about ways that people’s behavior is expressed in the market of goods. In a communist economy, the state controls the means of production and distributes products to its citizens. People do not work for the money to buy goods; instead, they work so as to contribute to the functioning of the communist state. They rely on the state, rather than their own desires or market forces, to determine what goods are available to them.
A capitalist economy is one in which the means of production are controlled by those who have capital or money to invest in business ventures. A genuinely capitalist economy is also known as a free-market economy, as market forces entirely determine the goods that people produce. If people no longer drink milk, then it makes little sense for businesses to continue producing milk (unless aggressive advertising on milk’s health benefits convinces the people otherwise). What people buy is based on two factors: what they want and how much money they have available.
What Is A Traditional Economy?
The idea that an economy refers to people’s behavior rather than how much money is produced comes into sharper focus when looking at a traditional economy. A traditional economy is one in which people do not use a standard form of currency, such as the dollar, but instead rely on bartering the goods that they produce. Rather than being pinned down to currencies, traditional economies are primarily determined by family ties and forces of nature. In other words, how they behave in the market is determined by their relationships with other people in the market rather than by consumerist impulses to buy the things that they want.
What this looks like in practice is that children who grow up on a farm raising cattle in a traditional economy will likely themselves grow up to be farmers. They will exchange things like milk to procure the goods that they need, such as textiles to make clothes and eggs and vegetables for food. Whom they barter with will not be based on who has the lowest price but instead on who their parents also traded with, in accordance with their family and community ties.
Traditional economies have many benefits. One is that they produce very little waste and are much more ecologically sustainable. Another is that, because they are so strictly based on human relationships, people understand what they are contributing to the overall well-being of the community instead of experiencing what some people call “alienation” (performing work when you do not see its significance). But because these economies are so firmly based on relationships, if relationships go sour – as they oftentimes do – the entire economic system can be disrupted. A simple argument, if not mediated by strong traditions and leaders, can turn into a family feud with disastrous consequences.
Another disadvantage is that traditional economies are highly dependent upon natural forces. One bad crop can spell disaster, or one catastrophe – such as a hurricane, tsunami, or earthquake – can cause a famine that leads to starvation without outside interference. Once that outside interference comes, often through humanitarian agencies or government bodies, the traditional economy can quickly assimilate into a cash economy and lose its distinctiveness.
Countries With Traditional Economies
Determining which countries today still have traditional economies is not a straightforward process, as institutions like the World Bank classify countries with more familiar terms, such as communist or capitalist. Yet within many countries – be they classified as a communist, capitalist, or socialist in terms of their economic systems – have pockets inside them that operate as traditional economies.
One example is Brazil, a country whose primary economy is a mix of state-run and market-determined forces. Yet inside Brazil are pockets of indigenous people, particularly those who live in the Amazon rainforest, who are not part of this economy. Instead, they have a traditional economy based on the goods that they produce, mostly by hand, and that they exchange with their neighbors.
Another example is Haiti, where nearly 70% of the population lives in rural areas and relies on subsistence farming. Yemen, the poorest country in the Middle East, has many remote villages in mountainous regions that are more reliant on exchanging agricultural products than on cash. Indigenous peoples in Arctic regions, namely Alaska, Canada, and Greenland, still rely heavily on hunting, gathering, and hand-made products as the primary mode of economic production. They sometimes sell these products to people outside their communities, but more often, they produce what they need for their families and extra to barter with their neighbors. Many groups in Africa, parts of Asia, and the Pacific islands also use traditional economies.
When traditional economies begin to assimilate into cash economies, they are known as mixed economies. A mixed economy is one that blends two or more economical models, such as socialism with capitalism or, in the above cases, capitalism with traditionalism. In mixed traditional economies, the people sometimes use cash to exchange for products and goods outside of their immediate spheres of influence. However, they still rely primarily on family ties and community bonds to determine how they behave within the market of goods.
What may soon become more apparent to economists is the reverse happening, in which people in cash-based economies begin to rely more on barter to attain what they desire. The result won’t be the abolition of money but rather a greater appreciation of the things that it cannot buy.