RURAL ECONOMIC SYSTEMS

(EXTN 1D2)

SERIES 1: ECONOMIC SYSTEMS 2

MR MZ SITHOLE
1ST AUGUST 2023
 LEARNING OUTCOMES

 To discuss the evolution of Man’s economy using

Rostow’s model.

 To highlight the difference between an open and

closed economic system.

 To describe the functions of the three actors within

an economic system.
 INTRODUCTION

 What are the questions that an economic system

seeks to answer?

 Where do you think we are in terms of

practically responding to those questions?
 HISTORY AND EVOLUTION OF
MAN’S ECONOMY
 The economy of man has evolved from one stage of
development to another. Hence, there are five main stages
of the development (evolution) of man’s economic systems.

 The first stage was the livelihood of man as a nomad

moving constantly from one place to another in search of
shelter and food. Rostow calls this stage The Traditional
Society.

 The fifth and current stage of is called by Rostow “The

Age of High Mass Consumption”.
ROSTOW’S MODEL OF ECONOMIC
GROWTH
STAGE 1 OF MAN’S ECONOMIC
DEVELOPMENT
 STAGE 2 OF MAN’S ECONOMIC DEVELOPMENT

 This is the stage of Man’s economic system called “Pre-

Condition for Take off”’.

 It is at this stage where man’s ability to domesticate solar energy

was actualized.

 Man settled in sheltered and fertile areas.

 Skills specialization and commercialization started.

 Investment focus changed from just hand to mouth to

STAGE 2 OF MAN’S ECONOMIC
DEVELOPMENT…
 STAGE 2 OF MAN’S ECONOMIC
DEVELOPMENT…
 Man was able to produce and store food after harvest.

 Man was able to channel his energy into other activities that
were beneficial to his survival.

 Man was able to use animal energy for mobility and to drive
basic farm implements.

 How do you think scarce resources were used at this stage?

 STAGE 3 OF MAN’S ECONOMIC
DEVELOPMENT
 Man was able to develop more improved tools and
implements. This is called the “Take off Stage” by Rostow
in his Theory of Economic Development.

 Large scale development of various artistic works.

 Migration and concentration of works in the cities.

 What skills do you think were eminent at this stage?

STAGE 3 OF MAN’S ECONOMIC
DEVELOPMENT…
STAGE 3 OF MAN’S ECONOMIC
DEVELOPMENT…
 There was increase in quantity and diversity of products.

 This gave rise to the advent of the Barter Economy.

 A Barter Economy refers to an economic system dependent on the

exchange of goods rather than credit card or cash transactions.

 This, therefore, at this stage of Economic Development allowed for

the exchange of goods and consumables in the market which allowed
for a balance of commodities needed for survival in the economy.

 What do you make of the spirit of Ubuntu at this stage of

 STAGE 4 OF MAN’S ECONOMIC
DEVELOPMENT

 This was the stage of the Pre-industrial era. This stage

Rostow calls “Drive of & to Maturity”.

 Tools and implements were replaced by machines.

 Accelerated increase in production of goods and

rendered services resulting in more specialization and
division of labour.

 Think of the issue of unemployment in this stage? Is

STAGE 4 OF MAN’S ECONOMIC
DEVELOPMENT…
 STAGE 4 OF MAN’S ECONOMIC
DEVELOPMENT…
 There was increase in population and greater potential
for commodity exchange in the larger towns and cities.

 The inter-dependence and linkage between producers of

complex goods became more prominent.

 The introduction of money as a new form of exchange.

 Think of the level of corruption at this stage.

 STAGE 4 OF MAN’S ECONOMIC
DEVELOPMENT…
 The use of money altered the economy by affecting production,
consumptions and savings of the people. Think of the consumer
behaviour at this stage????

 The two complementary flow (i.e., energy and money) on which

the economy is based was much more prominent. (They flowed in
opposite direction to balance each other).

 The flow of energy, materials and information moves in one

direction.

 The flow of money (resulting from transaction & exchange)

 STAGE 5 OF MAN’S ECONOMIC
DEVELOPMENT
 This is characterized by the advent of modern industrial
society.
 Rostow calls this stage “Age of High Mass Consumption”.
 There was massive use of fossil fuels as energy (coal, oil and
gas).
 There was further breaking of tasks and activities into
smaller parts allowing for greater specialization and division
of labour.
 This gave rise to massive concentration of workers in
factories and corporations.
 Increased industrialization also gave rise to massive
STAGE 5 OF MAN’S ECONOMIC
DEVELOPMENT…
STAGE 5 OF MAN’S ECONOMIC
DEVELOPMENT…

 What do you think of the concept of

unemployment again at this stage.

 What comes to your mind about poverty

levels at this stage?
ECONOMIC SYSTEM EVOLUTION

 Some Classic models generally show the evolving

economic system as a closed system.

 But it is a system that is open to the environment

and that is not beyond or above the rules of energy.

 Observe the next three slides and share your

thinking about this debate…
ECONOMIC SYSTEM
EVOLUTION…
ECONOMIC SYSTEM EVOLUTION…
ECONOMIC SYSTEM EVOLUTION…
DIAGRAMMATIC REPRESENTATION
OF THE ECONOMIC SYSTEM
 ECONOMIC SYSTEM EVOLUTION…

Theorists argue the following points with the evolution of the

economic system:

 Man is not just a producer and consumer.

 Man has the power to save money, thereby creating capital.

 Man is a creator. He creates information, technology, art, new

ways of living and thinking.

 Man can even store knowledge or ideas, thereby creating

 AGENTS IN THE ECONOMIC
SYSTEMS
 There are three (3) more categories of economic
agents not shown in the diagram, these includes:

 Financial Organizations

 The State / Government

 Foreign Market
AGENTS IN THE ECONOMIC
SYSTEMS…
FINANCIAL INSTITUTIONS

Financial institutions in an economic system:

 Act as a buffer in the system

 Hold reservoirs of money

 Provide credit
THE STATE / GOVERNMENT

The state or Government in an economic system:

 Provides regulations and policies to govern the system

 Rules and guidelines for credit and competition

amidst producers

 Provide adequate incentives to encourage production

and investments
 FOREIGN MARKET

 This refers to all activities around imports and

exports

 This two dimensions also have great influence

on the economic system
 REFLECTION ACTIVITY

Answer all the questions below:

1. What is an economic system? Explain in detail.

2. Provide a detailed description of the evolution of man’s

economic system.

3. Do you agree to the fact that an economic system is open in

nature? Defend your answer.

4. Describe the function of financial institutions in an

DID YOU KNOW?
 DID YOU KNOW?

1. “The only time a lazy man ever succeeds

is when he tries to do nothing”. Even
Esar.

2. “Lazy people are full of excuses and will say

anything to avoid taking action”. Darell
Reynolds.
THANK YOU

SEE YOU SOON