Traditional Economic System

Theoldestanduntil recent times the most common way of solving economic problems was that of tradition. In traditional societies, people use methods of production and distribution that were devised in the distant past and which have become an accepted way of doing things by a long process of trial and error.

A traditional economic system is one in which people's economic roles are the same as those of their parents and grandparents. Societies that produce goods and services in traditional ways are found today in some parts of South America, Asia, and Africa. There, people living in an agricultural village still plant and harvest their own food on their own land. And the ways they produce clothing and shelter are almost exactly the same as those used in the past. Tradition decides what these people do for a living and how their work is performed. Traditional economy provides a sense of security and psychological comfort. Subsequently, there is a relatively low unemployment rate and low crime rate. A traditional economy allows for a greater degree of autonomy and little or no money is used.

A traditional economy does not allow for much economic growth and development as changes are very slow and there is little social mobility. A traditional economy does not take advantage of technology and there is relatively little promotion of intellectual and scientific development. A traditional economy provides few incentives for entrepreneurs, thus limiting choices for consumers and lowering standards of living.