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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).
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