Earlier economic systems were based on customs, conventions and traditions.
1. Primitive communism or village economy
To begin in very early times when man began to live in groups, a sort of crude and simple system was evolved to meet the needs of the people living together. Thus began the system of primitive communism or the village economy.
In this system, whatever means of production were known and invented were collectively owned by the group or community.
Land was the most important factor of production owned and tilled by the members of the community to produce food grains .The product was distributed amongst the members, according to their customs & needs.
In addition to this, with the development of the social institution of family, other goods and services required to meet the other basic needs i.e. clothing and shelter were provided by undertaking activities at the family level. These included simple crafts & occupations like spinning and weaving, cattle rearing, carpentry, pottery etc.
The work was divided at the family level applying crude principle of division of labour with due consideration to nature of work, age, sex, physical & mental ability, natural ability, etc. This can be said to be the beginning of division of labour.
Production here was mainly for family consumption and later for a smaller area inhabited by a smaller group of people i.e. the village. Therefore this system is also described as the village economy.
The localities in which people used to live in groups were isolated from each other due to absence of means of transport. Money was not introduced therefore the barter system of trade was used & services were paid in kind, mainly in the form of food grains.
Human wants were comparatively limited. Due to all this it was necessary to have a self-supporting arrangement for production of goods and services & distribution was according to needs customs and conventions.
Production was primarily the value in use rather than value in exchange determined i.e. determined more by usefulness, utility of the commodity rather than their exchange value. In other words, it was not profit motivated but motivated to satisfy the consumption need of the family.
This system offered no incentive to increase production. With passage of time, advance of knowledge and development, introduction of new methods of production – some members of the community being physically & economically powerful, insisted on acquiring control over ownership of land i.e. instituion of private property emerged.
According to Friedrich Engels “it is this emergence of institution or private property that eclipsed the system of private communism and therefore gave way to new economic systems”.