Friday, May 30, 2014

2 ALEXANDER CHAYANOV The Theory of Peasant Co-operatives

Agricultural co-operatives arose in our country long before the revolution of 1917. They existed, and exist, in a number of capitalist countries. However, in our country before the revolution, as well as in all other capitalist countries, they represented nothing more than an adaptation by small-scale commodity producers to the conditions of capitalist society and a weapon in the struggle for existence. They did not represent a new social system, nor could they do so; and in this respect all the dreams of the many ideologues of co-operation were Utopian.
But this state of affairs is radically changing, since the system of agricultural co-operation, with its social capital, its high degree of concentration of production and the planned nature of its work, is appearing not in the context of capitalist society but in the conditions of a socialist society or, at least, of the state capitalism which exists in our country. In this case, precisely because of its high degree of vertical concentration and centralized co-operative system, it becomes linked through its centres with the directive agencies of the state economy and - from being a simple weapon created by small-scale commodity producers in their struggle for existence in a capitalist society - it becomes converted into one of the main components of the socialist system of production. In other words, from being a technical implement of a social group or even of a class, it is being converted into one of the foundations of the economic structure of the new society.
This process of the transformation of the inner social and economic content of the co-operative movement, with the replace­ment of the political domination of capitalism by the power of the working masses, was highlighted in a particularly vivid way by Vladimir Lenin in the articles About Co-operation, which he wrote shortly before his death. After noting the importance of co-operation, in the sense explained above, within the system of state capitalism, he foresaw the possibility of the further development of this transitional form and ended his argument by pointing out that 'a system of civilized co-operators, based on public ownership of the means of production and on the victory of the proletariat over the bourgeoisie, is socialism/
This interpretation of the national economic importance of agricultural co-operation is, in effect, what predetermines the main thrust of our agricultural policy. Given the nationalization of the land and the political domination of the working masses, this economic system, introduced into the system of the planned state economy by means of co-operative alliances and co-operative centres, can be regarded as being identical to the socialist organization of agriculture.
Such was the origin of the new forms of agriculture, built on the
The Processes and the Concept of Vertical Concentration  23
1. Reference can in any case be made to the excellent new book by V. S. Bernshtein-Kogan, Vvedenie v ekonomiku promyshlennosti [Introduction to the Economics of Industry], Moscow, 1926.
2. Editor's note: for contemporary discussion see V. P. Danilov, Rural Russia under the New Regime, London, 1987; 0. Figes, Russia's Peasant War, Oxford, 1989. Also T. Shanin, The Awkward Class, Oxford, 1972, Part III; G. T. Robinson, Rural Russia under the Old Regime, New York, 1966.
principle of vertical concentration. In its present condition, the co­operative movement in different regions is at different stages of a gradual development. Whereas in some provinces of the USSR we see only the first embryonic signs of buyers' and sellers' co­operatives, places such as the renowned district of Shungen or the districts of Velikiye Soli, Burtsevo and Kurovo in the Moscow province, provide us with many examples of co-operative concentra­tion penetrating into the very core of agricultural production and marketing. By closely following how they developed, we can trace to a certain extent the outlines of the new organizational forms of the agriculture of the future.
The Theory of Differential Optima and Co-operatives in the Peasant Economy
The broad national economic perspectives which we outlined in the last chapter, and the perspectives which we are outlining for the development of agricultural co-operatives, cannot be totally under­stood or expressed in concrete terms until we become familiar with the peasant household itself, which constitutes the foundation for the building of co-operatives and which is, in its present-day form, the raw material for all measures taken to organize our agriculture.
Despite the fact that over the past fifty years a great deal has been said and written about the peasant household, especially in Russia, we have, properly speaking, only very recently begun gradually to discern, from amid the torrent of general ideas and polemics, certain generally accepted propositions. These have been arrived at by empirical means and repeatedly tested and confirmed, and, as they accumulate, promise to provide us with an objective theory of the peasant household.
We are in any case already in a position to establish a number of propositions, which are at least sufficient to enable us to express our co-operative theory in concrete terms and to establish its social orientation.
The peasant households, taken as a whole as some kind of social stratum, represent a complex phenomenon which is extremely heterogeneous in its make-up. Already by the end of the last century, thanks to the fortunate endeavours of Shlikevich, the statisticians of the Zemstvo [regional authorities], when processing statistical material based on the censuses of farmsteads, had begun to use the method of classifying households according to the scales of land used, the area which they had under cultivation and the numbers of their cattle.
The Theory of Differential Optima and Co-operatives  25
It transpired from this system of classification that peasant households varied enormously in size and included those whose area was five to six times greater than that of their neighbours.
Because they were not well versed in studying the organizational foundations of the peasant household, many of the Zemstvo statisticians did not pay due attention to the fact that under a communal system of land tenure the land area of households was determined by the number of people, workers and mouths to be fed.1 Nor did they pay due attention to the fact that precisely this stratification had been revealed by classifications of peasant households described in the censuses of the eighteenth century. They then hastened to identify this stratification of the peasant masses - which at that time had been established only in a static form - as a dynamic process of horizontal concentration in Russian agriculture. From this point of view, the system of classification according to the area under cultivation revealed the social differentia­tion between peasant households. It also identified the peasants who sowed on a large scale as constituting the embryo of rural capitalism, and those who sowed on a small scale as the incipient proletarian workforce of the countryside.
This point of view, which seemed extremely plausible from a superficial observation of the countryside, persisted stubbornly and for a long time in economic literature, and it led economic thought on to an unproductive path of research. Only in recent years has it been demonstrated in the writings of N. Chemenkov, G. Baskin, B. Kushchenko and other statisticians that the system of classifica­tion according to the area under cultivation cannot, of itself, serve as a tool for revealing the social differentiation of the countryside; and that it largely reflects the demographic process of an increase of families, who obtain for themselves a corresponding increase in land, through communal redistributions or through leasing.
The fact that the system of classification on the basis of area under cultivation was ill-suited for studying the social structure of the countryside was noted also by a number of Marxist economists. Among these we find the sharpest critique in the work of Ya. Yakovlev which was concerned with the grain and fodder balance and was published in the USSR by the Central Statistical Board (TsSU).
The conviction gradually arose, even earlier, that the social structure of the countryside and the processes by which capitalism develops within it have to be studied not through systems of indirect classification on the basis of the area under cultivation, but through the direct study of capitalist relationships in the countryside.
The first to embark on this path was V. Groman who, when dealing with statistical censuses for the Penza province, classified households in relation to the hiring of labour. Similar classifications
26   The Theory of Differential Optima and Co-operatives
were used by N. Makarov when calculating work norms in relation to land tenure. Finally, in the summer of 1925 in order to clarify the nature of these relationships in the contemporary countryside, a number of field studies were undertaken by our Research Institute for Agricultural Economics. The material collected on these field studies enables us to identify six basic social types of peasant household:
1. The classical kulak household which may at times conduct its agricultural work without hired labour, but which derives the bulk of its income from the trade turnover, from credit based on usury and, in particular cases, from the hiring out of stock and other implements of production to poor households on conditions amounting to enslavement. Here the sources of capitalist income are either the trading profit or superprofit, or the income from the circulation of capital in enterprises belonging to others.
The development of households of this type has varied in different regions and in different epochs. In general, such households are few in number; but in terms of their influence they represent a major force in the countryside.
2. Households which do not engage either in usury or in trade but which have to be classified as semi-capitalist because in their agricultural or extra-agricultural work they constantly employ hired labour on a large scale, usually in addition to their own labour, in order to obtain an entrepreneurial income from such employment.
Households of this type are particularly developed in those regions which have a large number of land-holdings and which specialize in producing commodities for export (such as tobacco, wheat, the produce of market gardens, and so on). In these regions, such households are more numerous than those of the first type, but their social influence is always less and they themselves become the victims of exploitation by the kulak households.
3. Households which neither hire labour nor engage in other forms of capitalist exploitation. They run their households through the labour of their large families, they are reasonably well provided with the implements of production and they therefore expand the volume of their economic activity. Sometimes they are not inferior to households of the second type, especially when they use complex machinery and a tractor.
Households of this type are especially common under the
The Theory of Differential Optima and Co-operatives  27
communal system among the old, complex, undivided, patriarchal families with married sons. They comprise a large proportion of the households among the group which cultivates relatively large units. Such households will sometimes hire labour on a day-to-day basis in order to help the family at a busy period or to mow the hay or cart the manure. Such households are usually exposed to capitalist exploitation only as the result of market relationships, or when some of their members engage in off-farm labour.
4. Households which do not employ hired labour and which do not hire out their own labour to other households, but which, owing to the small size of their families or to the shortage of manpower or of the means of production or of land, are unable to develop into economically robust households of the third type. Households of this type are the commonest type of self-employed family peasant farms [trudovye khozyaistva] in our countryside. Apart from the customary kinds of market exploitation, they may be exploited by households of the first group, who loan them stock or cattle for productive purposes or grant them credit at commercial interest rates.
5. Households that, because of shortcomings in the use of land or shortages of the means of production or for some other reason, hire part of their manpower to households of the second group or to other employers. Despite the alienation of a part of their manpower, these households nevertheless continue to run a fully-fledged agricultural enterprise with a developed commodity sector.
This type of household, if one excludes those whose members earn money outside agriculture, develops in a manner parallel to that of households of the second type and is very often the victim of all the kinds of exploitation enumerated above.
6. Proletarian households whose main income is derived from the sale of their manpower, that is, from their wages. These households nevertheless have their own farming activities, usually on a very small scale and nearly always for their own consumption.
It should be noted that when we drew up the above classification, we took no account of the impact of work inside and outside their villages and households. The reason is that in those regions where such economic activities are developed, this form of employment of individual members of families is equally common to all our six types of peasant household.
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Table 1 Percentage of peasant households employing workers for fixed periods according to figures of the Central Statistical Agency (TsSU) for 1924
Province % Province %   
1. Far North 2.0 11. Lower Volga 0.8   
2. Northern 1.6 12. Crimea 0.6   
3. North-West 1.6 13. Soviet Caucasus 1.2   
4. Western 1.0 14. Kirghizia 1.6   
5. Moscow, industrial 1.9 15. Siberia 2.8   
6. Central Agricultural 0.6 16. Far East 1.6   
7. Volga-Kama 0.6 17. Turkestan 1.6   
8. Urals 1.6 18. Byelorussia 1.6   
9. Bashkiria 1.0 19. Transcaucasus 1.6   
10. Volga 0.8 20. Ukraine 0.6  
It is much to be regretted that neither our present nor still less our pre-war statistics, nor the statistics of the West, provide adequate data for measuring in quantitative terms the importance within the countryside of the six types of household listed above. The only available data are those relating to the percentage of households employing hired workers. In this respect, Table 1 provides us with some very revealing figures.
Unfortunately, we have no large-scale data as to the loaning of stock or of cattle for productive purposes, still less do we have any large-scale data on usury. Yet, according to the observations of the Volokolamsk field study of 1925, it was precisely these forms of capitalist exploitation which had become most widespread in the rural areas of the north. Thus, for example, among the households studied in this expedition, 27.3 per cent used work-stock belonging to others.
When completing our account of the different social types of peasant household, we also have to note the very important fact that none of the types which we have listed above is very often encountered en masse in a pure form. More often than not, households which employ hired labour will themselves, in turn, hire out their own labour; households which accept credit on terms amounting to usury will, on exactly similar terms, loan out their seed-drills or wooden ploughs.
This situation has become so confused that when preparing the material collected by the Volokolamsk expedition of 1925, its leaders (Ya. Anisimov, I. Varemenichev and K. Naumov), proceeding from the ideas of L. Kritsman, suggested the following method - which
The Theory of Differential Optima and Co-operatives  29
although very tentative nevertheless produces interesting results -for depicting the social nature of each peasant household in quantitative terms.
For the social description of peasant households they singled out two types of characteristic: that of hire and that of the use of capital belonging to others. They measured the capitalist elements in the structure of the household on the basis of the percentage of hired labour in relation to the total labour used within the household; and on the basis of the percentage of capital loaned outside, either in the form of money or of the hiring out of the means of production (stock, etc.). These percentages were added together in order to arrive at a coefficient of the degree to which the households were capitalistic.
In order to measure the degree to which the households were proletarianized, a reverse calculation was made. The resulting series of coefficients demonstrated how intensely the elements of capitalist exploitation were developing in some of the households in the flax-producing region.2
Having described the social make-up of our countryside through identifying the six types of household listed above, we can now turn to the basic question as to the importance of agricultural co­operatives for each of these types, and as to the future roles of each of the types identified in the pursuit of co-operative work.
It is absolutely obvious that the first type as such will not only be unable to bring its specific characteristics into co-operative work, but is sharply antagonistic to such work. The whole purpose of co­operatives involved in credit, marketing and the handling of machinery is to deprive this type of household of its basic functions. It is no accident that credit co-operatives in Germany developed and became consolidated as the direct result of their confrontation with usurers. In other words, households of the first type remain, and are bound to remain, outside the ambit of the co-operative movement.
In just the same way, the sixth, most proletarianized, type of household will also remain outside the ambit of the movement. It will do so not because it is antagonistic to co-operatives but because households of this type do not have the possessions which are needed for participation in co-operatives. Their tiny households -which, moreover, only produce for their own consumption - provide nothing for marketing co-operatives; the tiny area of land under cultivation makes the use of machinery unnecessary; and the volume of their purchases and credit will not make it worth while to hold shares in a co-operative. For this reason their active participation in co-operatives is possible only if they move up from the sixth type to the fifth type, which is sometimes possible if they are given co­operative credit.
30   The Theory of Differential Optima and Co-operatives
All the remaining groups, that is the overwhelming majority of households in our rural areas, have possessions which, even though diverse, are sufficient for co-operative activities.
It is true that, with regard to the use of complex machinery, and to some extent also with regard to the purchase of the means of production and even the primary reprocessing of agricultural raw material, households of the second and third types are, because of their size, more able to do without co-operatives than are households of the fourth and fifth types. It should be remembered, on the other hand, that participation in co-operative activities, both with regard to the buying of shares and with regard to work with co-operatives, requires a certain minimum level of material well-being and a certain economic stability, and that this slows down the entry into co­operatives of the weakest households of the fourth and fifth types. For these reasons, we must expect an equal degree of participation in co-operatives by both these types of peasant households.
If one also remembers the greater entrepreneurial flair of peasant proprietors of the second and, to some extent, of the third types, then from a dynamic point of view one should even expect them to join in co-operatives earlier than the small households. This is to some degree confirmed by empirical findings, in so far as this is made possible by contemporary investigations of the social structure of the countryside. Thus, for example, on the basis of recently published works by I. Gritsenko, A. Minin and others, we can see the following percentage of mass peasant participation in the co­operative movement, subdivided into groups according to the size of household (shown by the dynamic studies of 1924).
It can be seen from Table 2 that co-operatives are being joined by the households which sow on the largest scale and by households with an average number of cows. Remembering that the number of cows is a better indicator of well-being than the land area under cultivation, it can be seen that these figures confirm our presupposi­tions.
Bearing in mind, however, the generally insignificant number of households which sow on a large scale and the overwhelming numerical preponderance of households of the middle groups, we have to recognize that among co-operatives, and indeed among the general mass of households, it is the middle strata which predominate.
Of course, the quantitative classifications which we have quoted, especially those relating to the land area under cultivation, are, as we have already observed, far from adequate for the purpose of giving a social-economic description of households involved in co-operation. However, even they lead us to suppose that, while there is an
The Theory of Differential Optima and Co-operatives  31
overwhelming preponderance in the countryside of the middle strata, the other strata also take part in co-operatives.
The social foundation of agricultural co-operatives rests on two main groups of peasant household:
1. Households based on the employment, to a greater or lesser degree, of hired labour, for the purpose of obtaining an entrepreneurial income from the exploitation of this labour. In their pure form - that is, in reference to households based exclusively on hired labour - we shall henceforward term them capitalist market-oriented farms [kapitalisticheskiye tovarnye khozyaistva] (type 2).
2. Households which derive the overwhelming proportion of their output from the labour of the householder's family without employment of hired labour for entrepreneurial purposes; or, in a pure form, households which do not employ hired labour at all or else offer their own labour for hire. These we shall henceforward refer to as market-oriented family households [semyeinye-tovarnye khozyaistva], or simply as market-oriented peasant households [tovarnye krest'yanskiye khozyaistva] (types 3, 4 and 5).3
There exist in between these two a good many intermediate types: and, in its pure form, the capitalist market-oriented farm is at present encountered in Russian peasant conditions only very rarely. However, both of these types represent the main tendencies in the economic organization of the peasant homastead.
It would be a very great mistake to confuse these two types of enterprise. Each of them has its own organizational peculiarities and they not infrequently differ in their economic behaviour.
Readers who want to familiarize themselves more closely with the distinctive organizational features of these two types can get the necessary information from a number of special investigations.4 In this book we shall therefore confine ourselves to the comparisons needed for the purpose of our subsequent explanations.
The main elements in the economic organization of the capitalist market-oriented farm are: 1. its gross income; 2. the material costs of production expended in kind or in money or in deductions for amortization; and 3. the wages actually paid to the wage-earners. 4. Gross income less material costs of production and of wages, which are covered by the capital advanced, produce 5. profit which is the sole entrepreneurial purpose of the farm. The profit is not connected with the labouring activity of the proprietor's family and it depends, other things being equal, solely on the amount of the capital advanced to the farm.
Table 2  Social composition of peasant household members of co-operatives in the USSR (1924).
Groups classified according to the area under cultivation per household
of land sown 0.0 0.1-1.0    1.1-2.0    2.1-3.0 3.1-4.0    4.1-6.0    6.1-8.0    8.1-10.0
Membership of agricultural 2.5%       2.8%       3.2%       3.9% 4.0%       4.8%       5.7%       7.1% co-operatives per hundred                             p households of given group
of land sown 10.1-13.0 13.1-16.0 16.1-19.0 19.0-22.0 22.1-25.0 25.1-30.0 30.1-40.0 40.1 and over
Membership of agricultural 9.1%       9.6%       10.3%     10.7% 11.0%     11.0%     16.0%     17.5% co-operatives per hundred households of given group
Groups classified according to the number of cows per household
Number of cows 0 1 2 3 4 and over
Membership of agricultural 3.8%       3.9%       6.6%       5.7% 6.2% co-operatives per hundred households of given group
Groups classified according to the area under cultivation per household
of land sown 0.0 0.1-1.0    1.1-2.0    2.1-3.0    3.1-4.0    4.1-6.0    6.1-8.0    8.1-10.0
Proportion of households in    3.2%       9.5%       16.8%     17.3%     13.0%     17.7%     9.0%       5.1% co-operative system which have this area under cultivation
of land sown 10.1-13.0 13.1-16.0 16.1-19.0 19.1-22.0 22.1-25.0 25.1-30.0 30.1-40.0 40.1 and over
Proportion of households in    4.1%       1.8%       0.9%       0.5%       0.3%       0.3%       0.3%       0.2% co-operative system which have this area under cultivation
Groups classified according to the number of cows per household
Number of cows 0 1 2 3 4 and over
Proportion of households in    16.1%     55.7%     22.3%     4.1%       1.8% co-operative system which have the number of cows shown
Note: 1 Desyatina = 2.7 acres.
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As a result of this, the size of a capitalist farm can in theory be expanded without limit by the hiring of more and more workers, while the degree to which intensive economic methods are used and the choice of the crops and specialized sectors which comprise the organizational plan and the way they are combined, are all totally determined by the influence which they may have on the size of profit (or, to be even more precise, on the rent, that is, on net income less the usual rates of interest on capital).
A market-oriented peasant family household builds its organization in a different way and in its case the main elements are: 1. the same gross income as above; 2. the same material costs, but instead of wages actually paid we have here the labour in kind provided by its family.
It is therefore impossible for us to identify any genuinely distinct or physically perceptible net income in a family household. The only reality which exists is that of the gross income. If one subtracts from this gross income the sum of the expenditure in real terms which is incurred in order to reproduce the capital for the purpose of the following year's output, then there remains available to the household's family a sum which can be set aside either for personal consumption or for capital accumulation. This sum has been defined by Professor E. Laur as the payment for the labour of the peasant family (Arbeitverdienst). It is, indeed, the aim of the family household to earn this sum, together with the opportunity of completely reproducing its real capital every year. In this case, to use the customary language of political economy, the interests of the peasant as an entrepreneur and his interests as a worker are inseparably and indivisibly merged into a single whole.
In view of the fact that in market-oriented family households work is performed by the family itself, the total amount of labour expended and, therefore, the overall volume of economic activity - given an adequate supply of the means of production - is determined (or at least restricted) by the size of the family, that is, by the number of its members who can work. It must be reckoned, however, that the question in this case concerns the maximum possible volume of economic activity to which the household aspires. The actual volume of economic activity usually falls short of the maximum in view of the shortage of capital and of the means of production which is usual in our peasant households.5
These, then, are the organizational patterns of the two types of enterprise. Where land is relatively abundant and where family households are able to employ their manpower more or less to the full, these two types of household differ little in their economic
The Theory of Differential Optima and Co-operatives  35
behaviour because a high remuneration per unit of labour coincides with a high net income.6
However, the situation begins to change when we switch our attention to the areas of agrarian overpopulation, that is, to areas where the historically conditioned size of the peasant population significantly exceeds the manpower needed to cultivate the land at the level of agricultural intensity which yields an optimal net income.
A capitalist farm, in such conditions, would simply dismiss the workers which it did not need. But a family household which is unable to apply its labour to its small plot of land is in a different position; and since the peasant cannot dismiss himself from his own household he finds himself in an enforced state of partial unemploy­ment. If, because of the circumstances, there is no way out of the situation through wage earnings, through crafts or through land leasing, then the position of the household becomes doubly distressing: its manpower is reduced to enforced idleness while the family's consumer budget is sharply curtailed. This prompts the householder to search for some way out of the situation which has arisen.
It is in these conditions that the difference between the family household and the capitalist farm begins to make itself felt: because the interest in the largest possible gross income and the interest in obtaining the largest possible annual remuneration of labour begin to outweigh the interest in the highest possible remuneration per unit of this labour. Unsatisfied needs, combined with a surplus of labour which is unable to find new means of employment, begin to weigh down on the household, compelling it constantly to seek out new ways of applying its labour on the same area of land, at the cost of a sharp drop in the remuneration per unit of labour.
It thus quite often happens that work which is deemed by a capitalist farm to be unprofitable is profitable in a market-oriented family household, and vice versa. For example, let us try to explain why, during the decades immediately before the war, the peasant households in the Tver and Smolensk provinces very willingly and energetically expanded the areas under flax cultivation although capitalist landlords almost entirely refrained from sowing flax.
Table 3 gives us a computation of income and expenditure for each desyatina [2.7 acres] of land under flax cultivation with a similar computation for land cultivated by oats.
For a household which is based not on its own members' work but on hired manpower, the sowing of oats is undoubtedly more profitable than the sowing of flax, because the profit from oats is twice as high per unit of land. And if we express it as a percentage of
36  The Theory of Differential Optima and Co-operatives
Table 3 Approximate production costs and income yield per hectare of land under flax and oats (on one's own land)
Expenditure Oats Flax   
Seed, horses, etc. 15 roubles 15 roubles   
Human Labour 20 roubles 80 roubles   
(20 working days) (80 working days)   
Total expenditure 35 roubles 95 roubles   
Gross income 45 roubles 100 roubles   
Net income 10 roubles 5 roubles  
the entrepreneur's capital outlay (as a percentage of expenditure), then the advantage of sowing oats is even more substantial, since the net profit in relation to the outlay of turnover capital will be 28.6 per cent for the sowing of oats while for the sowing of flax it will be no more than 5.3 per cent.
It is therefore quite understandable why capitalist farming avoided the cultivation of flax; and, according to the 1916 agricultural census, out of the entire area of land under flax cultivation only 3.1 per cent was attributable to the estates of large landowners.
Yet for a peasant economy in a state of agrarian overpopulation, the sowing of flax may turn out to be preferable to the sowing of oats, since it provides an opportunity for the fullest use to be made of the family's manpower and enables the family to obtain from that same desyatina [2.7 acres] a remuneration of 85 roubles for its labour, instead of the 30 roubles obtained from oats.
It is true that by applying 80 working days of his labour to a desyatina of land under flax cultivation, a peasant can, for each working day, obtain a remuneration equal to the value of the finished product, that is, 1.06 roubles, whereas a working day expended on the sowing of oats is remunerated at the rate of IV2 roubles.
There is no doubt that if a peasant were able to achieve a five-fold expansion of his sowings, and if he were able to apply all his labour to the sowing of oats, then he would not stand to gain from the cultivation of flax. However, should the tiny peasant plots in the areas of agrarian overpopulation sow nothing but oats, they would condemn themselves to enforced unemployment for the greater part of the year. Anyone who has observed a peasant household in areas of agrarian overpopulation in Russia can clearly see that the peasant plot, given the present three-field farming system, is not only incapable of feeding the household's family with its harvest produce,
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but is unable to utilize even half of its manpower.
It has been proved by a number of statistical investigations that as a rule, a peasant family is able - on its own land and given the three-field system - to utilize between one fifth and one quarter of its available working time; and it is, of course, far from being able to earn enough income from the land to cover all the expenditure which is essential for its livelihood. Therefore a peasant household, when it has unused manpower and far from adequate resources for a livelihood, naturally seeks to find an outlet for its unused labour in order to increase, one way or another, its annual earnings.
When seeking an outlet for its labour, such a household will often accept a very low remuneration and is even prepared to undertake economic activities of a kind which - according to any calculation of the family's labour in terms of ordinary wage rates - not only bring no profit, but appear to produce an undoubted loss.7
Nevertheless, the peasants do undertake such work: they pay loss-making land-rents, they engage in unprofitable cottage indus­tries, they sow crops on their fields which require a great deal of labour and yield a high gross income per unit of land, but which provide low remuneration for every working day expended. It is self-evident that all this is done in those cases where there is no other, more profitable, outlet close to hand for the employment of labour.
No one can feel enthusiastic about such a state of affairs. Agrarian overpopulation and the things that go with it are one of the most terrible scourges of our national economy. The struggle against it, as well as the struggle against the decaying three-field system based on extensive methods which exist in these areas, is an urgent task of our economic policy.
However, it must be noted that the misfortune in this case is the fact of agrarian overpopulation and all that goes with it - and in no way the ability of the peasant economy to adapt itself to this calamity. The peasant economy's flexibility and its ability to adapt itself in the face of the most difficult conditions of existence should be regarded as a very great virtue of its economic organization.
This capacity for resistance saves the peasant economy not only in cases of agrarian overpopulation but also in times of violent market fluctuations which totally ruin enterprises organized on capitalist principles. Let us suppose that a capitalist entrepreneur contem­plates sowing five hectares [12.4 acres] of oats on leased land and wishes to ascertain whether this undertaking is advantageous.
His economic calculations will work out roughly as shown in Table 4. The fact of a net profit of 40 roubles, amounting to about 12 per cent of the capital outlay (320 roubles), will make the operation profitable and the entrepreneur will try to undertake it, since
38 The Theory of Differential Optima and Co-operatives Table 4
Leasing of 5 hectares multiplied by 16 roubles 80 roubles
Seed 50 roubles Gathering in of the harvest. 100 working days multiplied
by 1 rouble 20 kopecks 120 roubles
Work with horses 30 roubles
Amortization and other overhead expenses 40 roubles
Total expenditure 320 roubles
88 quintals of oats at 375 kopecks each 48 quintals of straw at 62.5 kopecks each
Total receipts Net income
330 roubles 30 roubles
360 roubles
40 roubles
investments of the capital in interest-bearing securities or by deposit in a bank, will yield a significantly lower profit (5 to 7 per cent).
But the situation will become entirely different if the price of oats is not 375 but, let us suppose, 312.5 kopecks per quintal. In that case, the calculation will appear as follows:
Income from the sowing 305 roubles Expenditure 320 roubles
Loss 15 roubles
An undoubted loss will make the undertaking unprofitable for the entrepreneur and he will abandon sowing since he cannot undertake it without loss.
The peasant family - whose basic aim is not to obtain a rate of interest on comparatively minute capital, but to obtain remuneration for a year's labour - will make its calculations on an entirely different basis.
1. The peasant family will invest 100 working days in the land sown.
2. In addition it will spend 200 roubles in rent, in payment for seed and for the work of horses and on other expenses.
3. If the price of oats is 375 kopecks per quintal it will earn 360 roubles.
The Theory of Differential Optima and Co-operatives  39
4. After subtracting from income the material costs which it has incurred, the family will earn, as a result of its labour, 160 roubles.
5. These 160 roubles represent the remuneration for the 100 working days expended by the family on the sowing of oats; consequently, the remuneration for one working day invested in this activity has been 1 rouble 60 kopecks.
This then is the remuneration for his working day which the peasant would compare with other possible rates of remuneration for his activities. And he will regard the sowing of oats as profitable once he has become convinced that no other activity will remunerate his labour at a rate above 1 rouble 60 kopecks.
For the peasant, this and this alone is the yardstick for ascertaining the profitability of alternative activities. If, let us suppose, an agricultural household pays for his work at the rate of 80 kopecks and work in crafts pays at the rate of 1 rouble, then he will 'have no time' to work in agriculture. The peasant uses the same yardstick when comparing the profitability of crops in his own household.
It need hardly be said that such a method of ascertaining profitability may lead to conclusions which are the exact opposite of the reasonings of the capitalist entrepreneur. Thus, for example, we have demonstrated that if the price of oats is 50 kopecks per quintal, the entrepreneur stands to gain nothing by sowing oats on leased land. But let us see whether a peasant can sow them. For this purpose we shall repeat the calculation already quoted:
1. The peasant family invests 100 working days;
2. In addition it will incur costs of 200 roubles for rent, seeds, etc.;
3. If the price of oats is 3.125 roubles per quintal, it will receive 305 roubles;
4. After subtracting from income the material costs incurred, the family will earn 105 roubles;
5. 105 roubles represent the remuneration for 100 working days; consequently one working day expended on the sowing of oats will be remunerated at the rate of 1.05 roubles.
But is the remuneration of labour at the rate of 1.05 roubles for one working day possible and acceptable for a peasant worker? It is not, if other earnings at a higher rate are open to him. But the answer is undoubtedly yes if no other, more profitable, earnings exist. In other words, whereas in an enterprise organized on capitalist principles, there appears a loss which erodes the farm's
40  The Theory of Differential Optima and Co-operatives
material capital, in the case of a peasant household we are seeing a drop in the level of consumption, sometimes, it is true, almost down to the level of starvation.
No one, of course, can welcome peasant hunger; but one cannot fail to recognize that in the course of the most ferocious economic struggle for existence, the one who knows how to starve is the one who is best adapted. All that matters is that those who shape economic strategy should make this latter method superfluous. In any case, the peasant family household's capacity for resistance, which we have already noted, and which does not need to manifest itself in extreme forms involving hunger, serves to explain the peasant household's tenacity for life and its astonishing capacity for revitalization during various critical periods of its historical existence.
This is one of the capacities of the market-oriented family farm. We may confidently reckon that the development of agro-technology, the increase of capital investment in the peasant economy, its industrialization and mechanization, a properly organized resettle­ment of rural populations and, finally, the development of co­operatives, will in time render the manifestation of this capacity superfluous. But the fact must not be overlooked that in the numerous economic crises that still face our co-operatives, the exceptional capacity for resistance on the part of peasant households will more than once make it possible to deflect economic blows away from the co-operative apparatus on to the peasantry - thus rescuing co-operatives from inevitable destruction and paying the production costs of the new national economic system which we described in the first chapter.
These are the attributes of one type of peasant household, upon which agricultural co-operatives base their structure. Another type, which is based on the more or less developed exploitation of hired labour, is obliged, during years of severe crisis, to rely on reserve capital and funds. On the other hand, since its production is on a large scale, it gets the opportunity to utilize the advantages of large-scale farming and, in normal years, to produce great quantities of a homogeneous product at a low cost.
What then is the organizational significance of co-operatives themselves for the households described?
The two types of enterprise described - the capitalist market-oriented farm and the market-oriented peasant household - differ in their methods of economic calculation and therefore in the structure of their crops and specialized sectors and in the extent of their reliance on intensive economic methods. But they do not differ greatly from each other with regard to the technical organization of production itself; and they can therefore be examined together.
The Theory of Differential Optima and Co-operatives  41
The organization of production in any agricultural enterprise will -except in certain special kinds of enterprise - nearly always begin by determining its scale, which is ultimately expressed by establishing a definite area of land for farming.
For large-scale cultivators, the land area was itself the starting-point. For the entrepreneurial capitalist farm, the determining factor is the amount of the capital advanced. For the family peasant household - if it has not been confined within the immovable boundaries of a plot - the determining factor is the existence of both a family and capital.
Only after determining its area is it possible to embark on the organization of the enterprise. Here, the first step is to determine in what directions it is to specialize; that is, in the case of a market-oriented enterprise, to determine the basic commodities which it would be most profitable to manufacture - given the current state of the market and the enterprise's characteristics. Having determined its basic market goals, or, as is usually said, the basket of commodities, the enterprise has to consider them in relation to two other balances: those relating to fodder and consumption or, more precisely, those ingredients which have to be produced by the enterprise in kind.
Having thereby sketched out a rough organizational pattern for the enterprise it is possible to embark on the preliminary organization of the particular piece of land, that is to divide up the land according to its economic purpose: into forest, common pasture, meadow and arable land; and to divide up the latter into fields for grain, flax, fodder, intertilled crops, etc.
When this outline has been drawn up, it is possible to begin organizing the tillage, fixing the seed turnover and composition of the crops, and making estimates with regard to sowing and harvesting. When the tillage requirements have been ascertained, the traction requirements can be calculated: that is, it is decided how many animals and vehicles are needed to work the fields and on what scale they are needed, allowing for the normal care of other land. The cattle, once its composition is determined, is correlated with the amount of fodder which it needs and with the supplies of fodder available to the enterprise - which can in case of need be supplemented by purchases of fodder, either in order to increase the overall number of fodder units within the enterprise, or to ensure that the general fodder supply contains the proper balance between albumen and carbohydrates. Having fixed the composition of the fodder, we can then go on to organize the cattle-rearing. Having completed the organization of the cattle-rearing, we can calculate what manure fertilizer is required, how it is to be distributed and
42   The Theory of Differential Optima and Co-operatives
generally organized. After this, it becomes possible to organize specialized sectors: market gardens, orchards and hemp fields.
This completes the organization of the productive sectors and we can arrive at a calculation of the overall expenditure of labour which is required, the distribution of this labour over time and the extent of of its mechanization. After deducting the requisite amount of manpower, we arrive in regard to the family household at a guideline figure which, when compared with the manpower available to the household, enables us to ascertain whether the organizational plan drawn up is, or is not, attainable. The next thing is the organization of the stock and of the technical operations (mainly the primary reprocessing of agricultural products: butter manufacture, the reprocessing of flax, etc.) and the organization of the buildings and management of the farm. This completes the farm's technical organization, expressed in physical terms. It may be verified by a special calculation of the household's turnover of nutritive substances which shows whether the plan drawn up may involve despoiling or impoverishing the land.
After completing the physical and technical organization of the farm, and after making an economic calculation in the form of a financial plan, the farm's organizer proceeds to a final economic calculation in regard to the household, by preparing estimates for the household's output and for its anticipated annual balance-sheet.
This is almost inevitably the way that economic calculations develop in those cases where an organizational plan is drawn up consciously. But if - as happens in the overwhelming majority of peasant households - this plan is evolved, in the manner of the species of the animal kingdom, through a prolonged natural selection of the fittest, then the relationships which we have been examining exist in the economy without anyone being subjectively aware of them. A peasant runs his household in accordance with a definite organizational plan although he is often totally unaware of it, like Moliere's Jourdain who spoke in prose for forty years without guessing that he was doing so.
As a result of these and similar arguments concerning the economic and natural conditions for the existence of a household, there arises a correlationship - which differs greatly in different areas and among different social groups - between the specialized sectors of a household and its overall organizational plan.
An example of such a complex organizational plan can be seen in Figure 1, which gives a graphic representation of the economic turnover of a peasant household in Starobelsk, in the Kharkov province.
44   The Theory of Differential Optima and Co-operatives
Figure 1 provides an extremely graphic representation of the annual turnover of valuable resources in an average-sized peasant household in the Starobelsk area. Beginning from the left-hand side, we can see, grouped into a vertical column, all the primary elements of production (the expenditure, the outlays of livestock and human labour, the material outlays in money and in kind, which are common to these households). Each of these categories of expenditure is tentatively shaded in; and records of money transactions are also preserved for inclusion among items of receipt. The height of each section of the column is proportional to the sum expended on the household under this section; and the scale for translating the value of the expenditure into figures is given on the right-hand side of the figure. All these expenses are then divided up according to the separate sectors of the household and, together with data of gross incomes, they form groups of columns, each of which corresponds to one sector of the household. Most of these groups are to some extent interconnected. The foundation of the whole structure of the diagram is the field crops category. Its primary elements are made up of various items of expenditure amounting to 306.27 roubles. The above-mentioned sum of valuable resources, after they have passed through the production process, which is denoted on the figure by two vertical lines, yields tillage products of the total sum of 585.63 roubles, which is also depicted by the appropriate column.
Part of the product thus obtained was sold (as shown in black), part of it was placed at the disposal of the peasant householder, and yet another part was again used for production and, as shown by the dotted lines, it passed into the poultry-breeding and cattle-rearing groups. Immediately below the field husbandry columns, there is a group of columns corresponding to the circulation of valuable resources in the cultivation of meadows.
Of the hay produced at a value of 32.70 roubles, a small part was sold; and all the remainder, as shown by the dotted lines, was used for cattle-rearing. Cattle-rearing, which gets its fodder stocks from tillage and the cultivation of meadows, itself involved expenditure in kind on feeding the herdsmen, as well as the cost of the work of looking after the cattle, a proportion of the general expenditure; and all the money expenditure on cattle-rearing. This column represents all the valuable resources expended on cattle-rearing. After they have passed through the production process they yield a product of the sum of 284.35 roubles which means that the cattle-rearing makes a loss.
The group of columns relating to poultry-breeding is constructed in exactly the same way. The groups relating to forestry and market gardens have no connection with the other groups. The extreme
The Theory of Differential Optima and Co-operatives  45
right-hand column indicates the sum total of valuable resources obtained as the result of all the production processes. Since all the columns are built to the same scale, the figure makes it possible to analyse not only the organization of every sector of the household, but to compare the relative importance of these sectors and of the interrelationship between them.
We get an entirely different picture from two other cases which represent the correlation between sectors in an exclusively flax-cultivating household in the Volokolamsk district and a market-oriented dairy farm in the Vologda province. In the first case, the household's basket of commodities is based exclusively on field crops; and in the second, almost exclusively on cattle-rearing. There is also a very different structure relating to consumption and to fodder.
By breaking down the elements in these two programmes into their technical components we can see that agricultural production consists of numerous technical processes of differing natures which we can divide into the following categories:
1. Mechanical processes arising from the fact that land extends over space (tilling of the soil, sowing, transportation, gathering of the harvest, driving of cattle, etc.).
2. Biological processes of plant-growing and cattle-rearing (cultiva­tion of plants, milking of cows, fattening of livestock, etc.).
3. Mechanical processes of the primary reprocessing of raw material obtained (threshing, separation of cream from milk, manufacture of butter, scutching of flax [i.e. dressing the flax by beating], etc.).
4. Economic operations linking the household with the outside world (buying and selling, credit relationships, etc.).
In a technical sense each of these operations must have identical purposes, both in a large-scale and, equally, in a small-scale farm. However, some of them are better suited to a large-scale farm, and others to a small-scale farm.
A significant majority of the processes of the first category can be carried out equally well regardless of the scale of the enterprise. A large-scale enterprise has a certain advantage with regard to the use of complex machinery; and a small-scale enterprise with regard to internal transport.
Processes of the second category are considerably better suited to a small-scale farm, since they require great attention and individual care. The only thing that is better suited to a large-scale farm is the process of stock-breeding since the employment of stock-breeders is
46   The Theory of Differential Optima and Co-operatives
beyond the capacity of small peasant householders.
All the processes in the third and fourth categories can be considerably better organized in the most large-scale forms.
A detailed analysis of the various tendencies which we have noted towards either the enlargement or the reduction of scale in the different technical sectors of the household leads us to draw conclusions which are of crucial importance for our theory of co­operation.
The most important thing for an agricultural enterprise is not that it should be very large or very small, but that it shoud be of some intermediate, optimum, size where the advantages and disadvantages of a small-scale and a large-scale enterprise are balanced against each other. This may now be regarded as proved - by work undertaken by the Research Institute of the Agricultural Economics for the purpose of ascertaining the optimum size of agricultural enterprises, some of whose findings we summarized in Chapter 1. We showed that each system of farming had its own optimum scale of enterprise.
We made all these calculations in relation to agricultural enterprises as a whole. However, further analysis showed that if the organizational plan of the household was broken down into its different sectors, then it would be possible to ascertain for each sector its own peculiar optimum scale. There would be one optimum for the produce of meadow cultivation, another for tillage; and besides that, one optimum for grain crops, one for intertilled crops, another for seed production and yet another for different forms of reprocessing - varying in each case and, as a rule, varying very greatly, and so on.
In other words, the optimum scale for the enterprise as a whole is in no way the optimum for each of its sectors; and in order to get the very best results from applying the notion of an optimum to economic organization in agriculture, we need to forget about the oneness of an agricultural enterprise and to make an organizational breakdown of the organizational plan of an agricultural enterprise into its basic components. We then need to organize each component separately and autonomously on the specific optimum scale which is appropriate to it.
This theory, which we put forward several years ago and which came to be described as the theory of 'differential optima', is one which at first sight seems paradoxical and incapable of being implemented. Nevertheless, if one surveys the practice of co­operative structuring it is not hard to see that it is precisely here that our theory finds its full realization. It can even be said that the theory of differential optima is the basic organizational idea which underlies agricultural co-operation; and that only through co-operation can the
The Theory of Differential Optima and Co-operatives  47
theory be put into practice.
Because of the fact that it is technically possible to achieve a breakdown of its organizational plan into its individual components, the peasant household has been able to separate all those mechanical and economic operations whose technical optimum scale was greater than that of the peasant household, from the remaining operations. And it has been able, together with other similar households, to organize these operations on a large scale and indeed on an optimum scale, in a co-operative form.
Nevertheless, those operations whose optimum scale did not exceed that of the peasant household remained totally in the hands of the family household.
Thus, in the first category of technical processes, the use of machinery and engines was allotted to a special machinery association, while in the second category the selection of cattle and regulation of standards for the feeding of cattle were separated off, as also was the reprocessing of milk into butter in the third category. These were organized into appropriate co-operatives. Almost all of the fourth category of economic processes was organized entirely on co-operative principles in the form of purchasing and consumer associations, marketing associations and credit co-operatives. It must at the same time be noted that none of these processes, when organized on co-operative principles, lost their economic ties with the parent economy. And they imparted to the co-operative all those special features of economic organization, as well as that same exceptional capacity for survival, which we discovered in the peasant economy.
Capital within a co-operative plays the same ancillary role as in a family household. The scale of a co-operative enterprise is determined - as in the case of a peasant household - not by the amount of available capital but by the needs of the combined households.
Consumer and purchaser co-operatives cannot have a greater turnover than the purchasing power of their members. The size of a butter-producing factory is determined by the amount of milk available to its members. The credit turnover of a credit association corresponds to the credit turnover of its members, and so on.
The very structure of a co-operative and the profitability or otherwise of what it does are likewise determined not by the quest for a maximum profit on the capital invested in the enterprise, nor by the interests of the co-operative institution itself, but by the incomes from the labour of its members earned through the co-operative, and by the interests of their households.
A co-operative will be extremely useful, therefore, even if it
48   The Theory of Differential Optima and Co-operatives
produces absolutely no net profit as an enterprise, but nevertheless increases the incomes of its members. And conversely a co­operative will be harmful if, for example, if produces 10,000 roubles' worth of profits, but if, owing to unskilful management, the peasants suffer a shortfall of 40,000 roubles of income from their labour. The success of co-operatives is measured by the growth in their members' incomes, and not by the profits of the co-operative itself. There is the members' income and nothing else.
The nature of co-operatives, as an integral component part of the family household, becomes particularly visible from a comparative analysis of the capacity for survival of a co-operative vis-รค-vis a capitalist enterprise. Let us, for example, imagine a co-operative system for the marketing of eggs.
A private trader engaged in the egg trade buys eggs in order to sell them on at a higher price. If, after buying this commodity, the price of eggs on the market substantially falls, then the private trader is compelled to sell them below the price which he paid and makes a loss. But the co-operative is in a different position. It does not engage in any trade, it does not buy a commodity; and for it, the difference between the purchasing and the selling price is of no importance. Co-operation represents the organized marketing of the products of the peasant's labour; and if the price of eggs falls, this means that the peasant households which sell their output through the co-operative will get a lower remuneration for their labour; and, because of the special features of the peasant household, neither the co-operative apparatus nor that of the peasant household need suffer.
Such are the reasons which compel us to acknowledge that co­operation in the villages has no self-contained existence of its own but is a collectively organized extension of family production living the same life as the parent organism.
Professor A. Chuprov once noted in one of his writings that, in relation to agriculture, the idea of co-operation was no less significant than all the most important technical discoveries. And we can indeed acknowledge that the spontaneously evolving method of splitting up organizational plans into individual groups of processes, and of organizing each of them in accordance with their optimal economic and technical parameters, is providing agriculture with a most excellent economic apparatus.
What has just been said serves, in outline, to explain the importance of co-operation for the peasant economy; but it also points to ways of studying this economic phenomenon and of making this into something systematic.
In essence, no system of classification can lay claim to the absolute
The Theory of Differential Optima and Co-operatives  49
truth and no classification can be exclusively correct. It can only be the simplest or the most convenient one in relation to the goals which it is meant to serve. We are therefore prepared to accept the validity of any classification which serves the purposes intended by its authors.
When examining the emerging trend of the co-operative move­ment we must try, first of all, to classify all the diverse things observed into homogeneous categories in order more easily to understand the diversity of types and forms within the phenomenon being studied.
It very naturally follows from our concept of co-operation that this preliminary systematization of the data has to be carried out by reference to those economic processes which are to be organized on co-operative principles. Once we have acknowledged that a co­operative is merely a collective method of organizing the individual components of the organizational plan of a peasant household, it follows that when we build a classification system we must inevitably examine the role of each particular type of co-operative system in this organizational plan.
If in our mind's eye we envisage the organizational plan of an agricultural household, and if we then break it down into its constituent elements and think about which of those elements are most suitable for large-scale organization, this will enable us to determine all conceivable types of co-operation.
It is clear to us that large-scale purchases of the means of production and of articles of everyday use are more advantageous than are small-scale retail acquisitions - and this provides a basis for purchasers' co-operatives. It is equally obvious to us that a large-scale enterprise will obtain credit more easily and more cheaply than a small-scale family household, and that a large-scale organization will be able to sell its products more advantageously than a small-scale household. Hence the bases for credit and marketing co-operatives. The reprocessing of milk into butter, the scutching of flax and the drying of vegetables and fruits are most cheaply and efficiently carried out in factory conditions. Hence there are grounds for organizing co-operative workshops. A large-scale unit is in a better position where the use of complex machinery and stock-breeders is concerned. Hence a further dimension of possible co-operative work, and so on.
By thus analysing the organizational plan of the peasant household and identifying those elements within it which are suitable for co­operation, we can easily draw up a long list of possible forms of co­operation. However, when comparing such a list with real life, we may note that many of the types of co-operation which we have
50   The Theory of Differential Optima and Co-operatives

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