Economic Systems - Introduction

Introduction
There are vast differences between the economies of isolated, small, self-
sufficient societies and large-scale ones that are integrated into the modern
system of global commerce. These differences are not only in terms of the scale
of the economies. Their systems of production, distribution, and exchange as
well as concepts of property ownership are often radically different.
Systems of production refer to how food and other necessities are produced.
In other words, they are the subsistence patterns discussed in the last tutorial of
this series--i.e., foraging, pastoralism, horticulture, and intensive agriculture.
Systems of distribution and exchange refer to the practices that are involved
in getting the goods and services produced by a society to its people.
Regardless of the type of subsistence base, all societies need to have
mechanisms of distribution and exchange. These mechanisms, along with
ownership concepts, are the focus of this tutorial.
All of the large-scale societies of the world today have market economies.
These are very impersonal but highly efficient systems of production, distribution,
and exchange that are principally characterized by:
1. the use of money as a means of exchange

2. having the ability to accumulate vast amounts of capital (i.e., wealth that can
be used to fund further production)
3. having complex economic interactions that are ultimately international in
scale
A trip to buy a loaf of bread in an American

supermarket typifies the nature of market
exchanges. An individual who speaks no English
and who is a total stranger to all of the people in the
store can walk in, look around without any
assistance, and find the bread. Taking it to the
check-out stand, the price is registered
How difficult could it be
automatically with a bar code reader and appears
to buy a loaf of bread? on the cash register display screen. Without saying
a word, the purchaser can hand over the money,
pick up the bread, which is usually now in a plastic bag, and walk out of the
store. The exchange is quick, efficient, and did not require talking. The
purchaser did not need to personally know the people working in the store, the
baker, the miller, the farmer who produced the wheat, or the truck drivers who
carried the product from one stage of production to another and ultimately to the
point of distribution. Likewise, the purchaser did not need to even think about the
fact that the plastic bag that enclosed the loaf of bread was created mostly out of
petrochemicals that very likely started out as crude oil on the other side of the
planet. Likewise, the money that was given in exchange for the bread was made
with machinery that was created out of a number of different materials that
probably were acquired from several different countries. On close examination,
almost any simple market exchange involves the interaction of people all over the
world and elaborate technology used in production and distribution.
This kind of complex market exchange system does not usually exist in small,
isolated economies, such as those of indigenous foragers, small-scale
horticulturalists, and nomadic pastoralists. These societies rarely use money and
most people produce their own necessities. Their very different non-market
economies are described in the next section of this tutorial.
What is Money?
Before exploring the nature of non-market economies, it
is of value to compare the two broad types of money that
people have used around the world. Anthropologists
refer to them as general purpose and special purpose
money.
General purpose money is a portable, arbitrarily valued

medium of exchange. All market economies today use
this form of money. It can have a variety of physical
forms--e.g., coins, paper money, or bank checks. It can General purpose money
also be simply a digital transmission from one computer in the United States
to another that occurs with the use of credit cards or the
electronic transfer of funds. The key point about general purpose money is that
anything that is for sale can be bought with it--everyone accepts it. General
purpose money is also referred to as "standardized currency."
Special purpose money consists of objects that serve as a

medium of exchange in only limited contexts. In societies that
have it, usually there are certain goods and services that can
be purchased only with their specific form of special purpose
money. If you don't have it, you cannot acquire the things that
it can purchase. You may not be able to easily obtain the
special purpose money either. The Tiv people of central
Nigeria provide an example. In the past, they used brass rods
to buy cattle and to pay bride price. These rods were acquired
by trade from Sahara Desert tribes who ultimately obtained them from the
urbanized societies of North Africa. If a man could not acquire brass rods by
trade or borrowing them, he would be prevented from acquiring cattle and getting
married. This was potentially a critical problem because having wives and cattle
identified a man as being important and worthy of respect.
Traditional pastoralists commonly measure

wealth in terms of numbers of livestock. In a
very real sense, their animals are their form of
special purpose money. They usually make
exact equivalences in terms of relative value--
e.g., so many sheep equal so many head of
cattle which in turn equal the cost of a gun or
something else of value. If a man does not
have livestock in such societies, he usually Cattle--a form of special purpose
cannot trade for high prestige items nor can he money among traditional East
get married since animals must be given as the African pastoralist tribes
bride price. Using animals as currency has
distinct disadvantages and advantages. Animals can die of diseases and must
be actively cared for and guarded. This makes herding a risky business. On the
other hand, animals reproduce so that an individual's wealth can grow rapidly.
This is like getting a very high interest rate on money in a bank.
When general purpose money is introduced into an economy that previously only
had special purpose money, the effect most often is dramatic for the social
order. Among East African cattle herding cultures, it is now possible for a young
man to get a job outside of his local community and to earn general purpose
money. In these pastoralist societies in the past, young men had little hope of
obtaining wealth before they were in their early middle age. They usually had to
delay marriage for years because of the inability to accumulate a sufficient
number of cattle to pay a bride price. Typically, a man in his late 20's or early
30's had to obtain a loan of cattle from elder men in his family for this purpose.
The continuing obligation to pay off such loans reinforced the traditional authority
of older men and the dependence of younger men. Now it is possible for a young
man to accumulate enough general purpose money to purchase cattle and bring
them back to his tribal homeland. He can then use them to pay a bride price. As
a result, he will not be in financial debt to his elder kinsmen. The result is greater
economic independence for young men. This is likely to be seen as good from
the perspective of democratic, achievement oriented cultures, such as those of
North America and Europe. However, from the perspective of the pastoralist
societies in which these changes are occurring, it can be seen as being bad
because it undermines the traditional authority of elders. This authority has been
a key part of their cultural value system. A major concern of these societies often
is that erosion of the value system will result in social chaos and the destruction
of their traditional culture.
It is clear that the introduction of general purpose money has had a powerful
effect on previously isolated small-scale societies. It facilitates trade and gives
individuals the ability to accumulate wealth. Paradoxically, however, as the use
of general purpose money draws a society into the global economic system, it
does not result in economic independence for the society as a whole. In fact, it
usually results in less self-sufficiency.
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This page was last updated on Friday, June 23, 2006.

Copyright 2003-2006 by Dennis O'Neil. All rights reserved.
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Introduction

1. the use of money as a means of exchange

A trip to buy a loaf of bread in an American

General purpose money is a portable, arbitrarily valued

Special purpose money consists of objects that serve as a

Traditional pastoralists commonly measure

Return to Menu Practice Quiz Next Topic

This page was last updated on Friday, June 23, 2006.

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