Traditional system

After you have worked through this section of the learning unit, you should be able to:

  • describe the main features of a traditional system and identify strengths and weaknesses of the traditional system

The traditional economy is the original, oldest and most common method used to solve the economic problem in the history of humankind. Examples of such communities are Europe during the Middle Ages, India and China until a few decades ago and many parts of Africa to this day. An attempt to reinstate the traditional community took place in Iran under Ayatollah Khomeini in the 1970s.

In the traditional society, custom is the way in which the economic decisions on production, production techniques, division of labour, consumption, et cetera, are made. On the questions of what, how and for whom, the answer is "according to custom" and "as in the past".

The same goods are produced and distributed in the same way over generations. Men do the work their fathers did and women do the work their mothers did. These societies tend to value religious and cultural practices more than economic prosperity; for them, production is merely a means to an end. The system is rigidly driven by tradition, and there is little economic progress or development.

Adam Smith pointed out, for example, that the production problem in ancient Egypt was solved by the fact that it was expected of the oldest son to follow in his father's footsteps. This ensured an adequate supply of skilled craftsmen from one generation to the next. In practice, the status community proved to be:

  • unprogressive,
  • the extended family a disincentive to exerting oneself,
  • the division and specialisation of labour to be limited;
  • production to be mainly for own use, and
  • the standard of living to be low.

Traditional communities are characterised by their pre-technological and non-industrialised nature and the important role of agriculture.

The biggest disadvantage of such a system is economic stagnation. This is why the dismantling of certain traditional views is regarded as a prerequisite for economic development. Mediaeval serfs were able to escape their feudal responsibilities after the establishment of towns and cities by leaving the land. This partial break with the tradition of serfdom led to the establishment of new classless individuals who featured prominently in the economic progress that followed.

Watch the following section of the video clip on the traditional system from 1:45 minutes to 5:02 minutes and then do the activity:


Now do the following activity:

Indicate whether the following statements are true or false:

Under a traditional system, the factors of production are owned by the government.

Think again.  The statement is false.

In a traditional system, the factors of production are owned by the community. The government only owns the factors of production in a command economy.

In a traditional system, bartering plays an important role.

A weakness of the traditional system is that it is slow to adapt to new technology.

Think again.  The statement is false.

A traditional system is slow to adjust to new technologies. A traditional system favours  custom, how things have been done in the past, above innovation or new ideas.