Natural economy

Natural economy refers to a type of economy in which money is not used in the transfer of resources among people. It is a system of allocating resources through direct bartering, entitlement by law, or sharing out according to traditional custom. In the more complex forms of natural economy, some goods may act as a referent for fair bartering, but generally currency plays only a small role in allocating resources. As a corollary, the majority of goods produced in a system of natural economy are not produced for the purpose of exchanging them, but for direct consumption by the producers (subsistence).

Belgian economic historian Henri Pirenne noted that:

"German economists have invented the term Naturalwirtschaft, natural economy, to describe the period prior to the invention of money. (...) The writers who describe this period as one of natural economy obviously do not intend the term to be understood in any absolute sense. They are well aware that ever since its invention, money has been in continuous use among all the civilised people of the West, and that the Roman Empire handed it on without interruption to its succession states. Thus when the early Middle Ages are described as a period of natural economy, all that is meant is that the part played by money was then so small as to be almost negligible. Undoubtedly there is a good deal of truth in this contention; but at the same time we must be on our guard against exaggeration" (Henri Pirenne, Economic and social history of medieval Europe. London: Routledge & Kegan Paul, 1936, p. 103-104).

The term is also used by Karl Marx in his economic writings such as Grundrisse and Capital. Marx comments as follows:

Natural economy, money-economy, and credit-economy have (...) been placed in opposition to one another as being the three characteristic economic forms of movement in social production.

In the first place these three forms do not represent equivalent phases of development. The so-called credit-economy is merely a form of the money-economy, since both terms express functions or modes of exchange among the producers themselves. In developed capitalist production, the money-economy appears only as the basis of the credit-economy. The money-economy and credit-economy thus correspond only to different stages in the development of capitalist production, but they are by no means independent forms of exchange vis-à-vis natural economy. With the same justification one might contrapose as equivalents the very different forms of natural economy to those two economies.

In the second place, since it is not the economy, i.e., the process of production itself that is emphasised as the distinguishing mark of the two categories, money-economy and credit-economy, but rather the mode of exchange — corresponding to that economy — between the various agents of production, or producers, the same should apply to the first category. Hence exchange economy instead of natural economy. A completely isolated natural economy, such as the Inca state of Peru, would not come under any of these categories.

- Capital Vol. 2, chapter 4