Friday, May 30, 2014

3 ALEXANDER CHAYANOV The Theory of Peasant Co-operatives

1. Economic processes: the mechanical processes arising from the space of the land being worked
(a) Machinery users' associations.
(b) Associations for joint ploughing, etc.
(c) Associations concerned with water and land melioration.
2. Biological processes
(d) Bull pedigree associations.
(e) Societies for systematic stockbreeding.
(f) Associations concerned with quality inspection.
(g) Associations concerned with the selection of breeds.
3. Mechanical processes of primary reprocessing
(h) Threshing associations.
(i) Butter manufacturing associations.
(j)   Potato-grinding, vegetable-drying and similar associations.
4. Economic operations linking the household to the outside world (k) Purchasers' co-operatives.
(1)  Marketing associations, (m) Credit associations, (n) Insurance associations.
This classification, which is derived from the organizational plan of the peasant economy, is somewhat unusual in contemporary co­operative tiiinking. It is presented in order to help clarify the importance within the peasant household of particular forms of co­operation. But we shall henceforward pursue our study, not in the sequence of the system shown above, but in an order which is more usual and which is more appropriate to the historical sequence in which forms of co-operation actually developed and to the importance of these forms for our co-operative movement.
From an organizational and historical point of view, by far the most important place in our country belongs to the system of co-operative credit; and it is with this that we shall begin our analysis. Apart from that, the oldest and most firmly established type of co-operation is
identified analytically do not yet exist in reality. They have not yet been discovered in practice, just as our chemists have not yet discovered many of the elements of Mendeleyev's table of chemical elements. There is no doubt that the co-operative movement will, as it develops and takes root, bring to life more and more of the kinds of co-operation which we have identified.
When classifying particular forms of co-operative into more general categories, we can single out the following headings:
The Theory of Differential Optima and Co-operatives   51
1. Editor's note: For a discussion of the Russian peasant land tenure and social organization, see G. T. Robinson, Rural Russia under the Old Regime] also T. Shanin, Russia as a Developing Society, Newhaven, 1979.
2. Editor's note: The methodology of analysis was fully developed by V. Nemchinov: see Sobrannye sochineniya, Moscow, 1970, Vol. 1.
3. Since our concern here is to study co-operatives, we shall not include economies of the natural type in our analysis. The natural economy is alien to co-operatives in the present-day meaning of the word.
4. The organizational foundations of the market-oriented family household are explained in N. P. Makarov, Organizatsiya khozyaistva [The Organization of the Economy], Moscow, 1925; and in A. Chayanov, Organizatsiya krest'yanskogo khozyaistva, published as The Theory of the Peasant Economy, Madison, 1982. When studying the organization of the capitalist commodity economy use may be made of any course on the organization of a large-scale economy.
5. The factors which determine the scale of a family household are extremely complex and we would refer readers who want to familiarize themselves with this question to chapter three of our book referred to in note (4) above.
6. The differences will always be determined by the need of the self-employed peasant family farm [trudovoye khozyaistvo] to achieve a more even distribution of labour throughout the months of the year and by the opportunity available to big capitalist enterprises to utilize the advantages
that which relates to purchasing. The next place is occupied by marketing co-operatives and, after that, by co-operatives concerned with reprocessing linked with marketing.
After completing our analysis of these most highly developed and important branches of the movement, which are almost entirely connected with the external relations of the household, we shall then go on to clarify the role and the forms of the co-operative movement in the organization within the household of biological and mechanical processes - in relation to associations concerned with machinery, inspection, stockbreeding and others of a similar kind. Here, we shall devote special attention to those forms of peasant co-operation which are, at the present time, the newest and the least studied.
In accordance with our plan of work we shall attempt first of all to establish in each case the economic nature of the phenomenon which is to be brought within the ambit of co-operation. By analysing its nature we shall establish what organizational problems confront co­operative organizers in each of the cases studied and what are the organizational forms which life has actually put forward in order to solve these problems.
52   The Theory of Differential Optima and Co-operatives
of a large-scale economy (complex machinery, etc.). 7. Editor's note: The facts of the matter were also documented in our time. See, for example, the study of the Egyptian peasantry by E. Taylor, in T. Shanin (ed.), Peasants and Peasant Societies, Oxford, 1982.
Credit in the Peasant Economy
In order to achieve a sufficiently clear and distinctive approach when investigating the forms of credit organization used by co-operatives in practice, we first need to become familiar with the role that credit plays, or can play, in the turnovers of the peasant economy.
Only after making a detailed study of every type of household, with respect to the make-up of its capital and of its turnover - that is, of the ways in which capital is laid out and replenished - are we able to judge how far the various conditions on which credit is made available are suited to this type of economic organization; and how far, in the conditions of this circulation, the sums advanced on credit can be repaid by the borrower. The material collected by expeditions to investigate budgets - undertaken both before the war and at the present time - as well as special calculations recently made, enables us to build up a fairly detailed picture as to the make-up of the capital of the peasant household and as to its turnover.
Table 5 gives us some idea of the extent to which manpower was equipped with the means of production. The figures quoted, like all figures derived from budget studies, provide us with very precise figures which visibly show the interrelationship between different components of basic capital. But it must all the same be borne in mind that budget figures are nearly always based on a record of the better educated households, which are able to provide detailed economic information about themselves. Because of this, they usually provide us with somewhat inflated figures in comparison with the mass average.
In order to correct this inaccuracy, V. A. Lipinskii and I made a calculation of necessary amendments and offered an assessment of
Table 5  Value of the implements of production of the peasant economy calculated per household immediately before the war
Districts Value per household in roubles Total value per
—;—;---- hectare of land
_ Buildings       Cattle Stock Total under cultivation
Starobelsk, Kharkov province 420.5 471.2 100.4 993.6 103.4   
Volokolamsk, Moscow province 909.0 268.0 189.0 1365.6 229.7   
Vologda, Vologda province 453.0 137.0 82.3 672.3 257.8   
Totem, Vologda province 313.9 108.9 44.1 466.9 126.3   
Gzhatsk, Smolensk province 1123.6 212.7 83.2 1419.5 330.1   
Sychev, Smolensk province 1262.0 174.0 100.2 1536.2 256.3   
Porech, Smolensk province 1309.0 267.0 74.0 1650.6 275.0   
Dorogobuzh, Smolensk province 717.0 271.5 82.0 1070.6 237.8   
Voronezh province 341.0 130.2 79.1 652.2 68.2   
Tambov province 550.5 316.5 98.1 965.1 148.3   
Chernigov province 504.5 512.5 238.8 1255.8 153.2   
Novgorod province 489.0 173.3 82.0 500.3 148.4  
Credit in the Peasant Economy  55
the means of production available to average peasant households according to the mass data of 1924. We have arrived at the following picture of the extent to which average peasant households in different provinces of the USSR were equipped with the means of production, expressed in money terms (Table 6).
Table 6 Value of cattle, stock and buildings per peasant household (in gold roubles) (1924).
Regions Roubles per Regions Roubles per   
household household   
Far North 668.4 North Caucasus 822.3   
Northern 635.3 Crimea 907.3   
North-Western 784.0 Kirghizia 674.3   
Western 879.3 Siberia 675.0   
Moscow Industrial 902.8 Far Eastern 674.4   
Central Black Earth 578.1 Turkestan 696.8   
Volga-Kama 849.6 Byelorussia 791.2   
Urals 709.2 Transcaucasia 709.5   
Bashkiria 560.4 Ukraine 691.4   
Middle Volga 623.7   
Lower Volga 687.6 For the USSR 716.1  
There is a certain variation in the figures which is due not only to the varying quantities of the means of production in households, but also to variations in the prices of the means of production in different areas, which are sometimes very substantial. Also, it is essential, when examining these figures, to remember that they are no more than arithmetical averages. Because of the demographic and social differentiation between peasant households, the extent to which they are provided with capital varies greatly. Thus, for example, according to an investigation of budgets in Novgorod (1910) the group which sowed on a small scale had 872.37 roubles of capital per average household, while the group which sowed on a large scale had 2,349.63 roubles. In the Starobelsk district in the Kharkov province (1911), the amount of basic capital per household varied between 455.75 and 2,925.02 roubles. Of particular interest are the results of the social analysis of the last Volokolamsk expedition of 1925 (Table 7).
Therefore, when we set out to analyse the organization of capital in peasant households, we have to bear in mind that in this respect, they represent large variations of magnitude. However, what is
56  Credit in the Peasant Economy
Value per household in roubles
Buildings Cattle Agricultural stock Total   
Proletarianized 72.08 89.80 27.51 189.39   
Semi-proletarianized 219.53 165.51 54.49 439.43   
Households based solely 361.74 287.20 146.91 795.85   
on their members' labour   
Households mostly 755.19 482.30 389.91 1627.40   
based on their members'   
Semi-capitalist 1360.49 512.90 1145.23 3018.62   
important to us in the present book is not so much the extent to which labour is equipped with capital as the conditions in which this capital circulates within the household.
The following excerpt from the calculation taken from the main volume of a book-keeping analysis of an average household in Volokolamsk enables us to gain an insight into the economic turnover of capital invested in buildings. When looking at the figures quoted, we must first of all note that the stock with which the household began the economic year was subject to considerable wear and tear during the year; and its value declined from 187.04 to 156.84 roubles (see Table 8). In order to replace the worn-out and disused implements in the stock, new stock was acquired which cost 12.04 roubles (the so-called capital repair stock). After that, the mainten­ance of the stock in working order required current repairs costing 10.82 roubles.
Thus in the Volokolamsk district the cost of annual purchases (renewal) of stock amounted to 6.4 per cent of its overall value within the household.1 And current repairs came to 58 per cent of this overall value. In the Starobelsk district in the Kharkov province, purchases comprised 18.8 per cent and repairs comprised 5.2 per cent of the initial value of the stock.
In compiling these calculations, we should also note the expendi­ture on small items of stock which became worn out during the year
Table 7 Value of household buildings, cattle and agricultural stock among different social groups of peasant households in Volokolamsk 1925
Credit in the Peasant Economy  57 Table 8  Calculation of stock of an average household in Volokolamsk
Account Debit to which credited
Roubles Roubles Credit
Roubles Roubles Account to which debited
Value of Value of   
stock at stock at   
beginning end of   
of year 187.64 year 168.88 Capital   
Purchase Deducted:   
of new for   
stock 12.04 tillage 44.20 Tillage   
Repairs 10.82 92%   
Small for meadow 3.85 Cattle-   
purchases 6.43 cultivation 8% rearing  
and which - like current repairs - relate to current expenditure and not to the turnover of basic capital. What is particularly important to us in the above analysis is the evidence of constant wear and tear of the basic capital invested in the stock. The rate at which such wear and tear occurs depends on what the implements consist of. The more the household possesses complex machinery which serves for many years, the lower this rate will be.
A similar picture emerges from an analysis of the existence of basic capital in buildings. Thus a calculation relating to buildings with regard to this same household in Volokolamsk gives us the following picture (see Table 9). The make-up of the debit side of the account is similar to the account relating to stock. However, because of the greater durability of buildings the annual average percentage of expenditure on erecting and repairing them amounts in all to 5.2 per cent of their total value. The corresponding figures for the Starobelsk district are 5.1 per cent.
The annual wear and tear and the annual expenditure on the maintenance and repair of stock and buildings, which we analysed above, represent the cost of the use of this capital and constitute an overhead cost for the various branches of the economy which utilize them. This cost, if calculated in relation to one desyatina [2.7 acres] of land and one worker, produces the following rates for the Volokolamsk district (Table 10).
We can see that because of the buildings' long period of serviceable use, the annual cost of their maintenance is no greater
58   Credit in the Peasant Economy
Table 9  Inventory of buildings of an average household in Volokolamsk
Account Debit        Roubles Roubles Credit Roubles Roubles Account   
to which to which   
credited debited   
Capital 50% of 50% of   
value of value of hut   
hut at at end of   
beginning year   
of year*     218.18 209.45 Capital   
Value of Value of   
services at services at   
beginning end of   
of year      472.72 year 452.81   
690.90 662.26   
Cash Erection Deductions:   
of new for tillage   
buildings       2.80 65% 9.25 Tillage   
Repairs       14.60 for market-   
gardening Market-   
Insurance     14.32 0.5% 0.30 gardening   
for meadow   
cultivation Meadow-   
5.5% 3.32 cultivation   
for horse   
traction Horse   
16.3% 9.95 traction   
for product-   
ive cattle- Cattle-    *   
rearing 12% 7.54 rearing   
Total: 722.62 722.62  
* Footnote: The other half of the value of the hut is set against the personal account of the family.
for the household than the cost of maintaining stock; despite the fact that within each household, the capital invested in buildings is considerably greater than the capital invested in stock.
Entirely different principles apply to the turnover of the capital which the household has invested in cattle, as can for example be
Credit in the Peasant Economy   59
Table 10   Value of usage for one year
Per hectare of Per hectare of Per worker   
arable land meadow   
Stock 4.92 roubles 1.06 roubles 13.99 roubles   
Buildings 4.32 roubles 1.09 roubles 18.50 roubles  
seen from Table 11, which relates to an average peasant household in Starobelsk.
When we come to the last category of capital - turnover capital -we have to emphasize its unique position in a self-employed peasant family farm [trudovoye khozyaistvo). First of all, its relative scale in a family farm is considerably more modest than in a capitalist farm, since it lacks the main item of expenditure which in a capitalist enterprise is derived from turnover capital, namely, wages. The remaining components, that is, seeds, manure and fodder, to a large extent complete their turnover within the household in kind; and only part of the expenditure takes the form of money transactions.
When attempting to ascertain the scale of turnover of capital, we have to isolate from the overall expenses and receipts those items which should be so classified. Thus, for example, in the Starobelsk district of the Kharkov province, the items shown in Table 12 may be included among the expenses defined as turnover capital.
Thus turnover capital which is replenished every year in full, even though it exists mostly in kind, nevertheless represents a very substantial magnitude in the life of a peasant household. According to calculations which we made for 1924, throughout the USSR for every 100 roubles of basic capital in the peasant household, the latter had shown 15.9 roubles of turnover capital (i.e. seeds, fodder, money expenditure, etc., but not counting the value of the labour of its family). At the same time, this figure fluctuated sharply, depending on what farming system was being adopted. It was lowest in the Transcaucasian region (8.4 roubles per 100) and in Turkestan (9.1 roubles per 100); and it was highest in the cattle-rearing regions of the far north (23.3 roubles) and of the west (22.8 roubles).
The capacity for capital formation varied greatly among different strata in rural areas. Thus, for example, for the Starobelsk district (1910) we have the data of Table 13.
It is therefore quite obvious that a credit transaction, and the possibility of repaying the loan, can be examined only in connection with the processes which we have described of the circulation of capital within the household to which credit has been advanced. This
Table 11   Composition and movement of capital invested in cattle
Groups Value of Sold Died Slaughtered     Bought Increase Off Obtained Value of   
classified cattle for or for in value spring in cattle at   
according at sum disposed sum during valued kind end of   
to area of beginning of of of year* at sum from year   
sowing of year of elsewhere   
0.00 19.9 10.4 0.7 4.3               12.2 1.5 1.5 1.7 19.9   
0.001-3.00 50.2 40.1 0.7 2.7               42.2 3.2 3.2 1.6 54.2   
3.01-7.50 228.8 71.1 22.6 22.4               68.1 28.4 28.4 17.4 226.9   
7.51-15.00 539.0 138.1 31.8 49.0              123.7 31.2 31.2 33.9 519.0   
15.01 . . . 961.0 181.6 59.5 79.2              145.9 69.3 69.3 69.3 937.0   
Average 412.4 100.7 26.8 36.1               88.9 32.4 28.6 3.3 402.0  
* Footnote: This includes the value of animals which have grown as well as all other changes in the value of animals, ascertained by comparing their value at the beginning and end of the year.
Credit in the Peasant Economy   61
Table 12 Economic expenditure out of turnover capital in an average household in the Starobelsk district
In kind In money Total   
Payments and obligatory   
services - 12.54 12.54   
Journeys to the market   
and to towns - 1.71 1.71   
Rent - 30.92 30.92   
Hire of workers - 17.05 17.05   
Hire of agricultural   
implements - 0.94 0.94   
Other general household   
expenses - 10.37 10.37   
Seeds for planting in the   
fields 47.40 - 47.40   
Seeds for planting in   
market gardens 2.00 1.00 3.00   
Fodder for cattle 214.5 4.24 218.74   
Payments to shepherds 0.84 1.92 2.76   
Shoeing of horses - 1.01 1.01   
Payments for work done - 2.94 2.94   
Grain and other food for   
poultry 9.47 0.54 10.01   
Total per average   
household 274.26 85.18 359.44   
Total per worker 77.0 23.86 100.86  
idea, which might have seemed quite obvious and which was frequently applied in practice when credit was advanced, for some reason failed for a very long time to be reflected in economic theory. Credit was reduced to a simple trade in capital or, more precisely, to a trade in the use of capital, which was remunerated by payment of interest for this use when the loan was reimbursed. The creditor always assumed that his loan was secured by the property of the borrower; and even in the case of a loan granted on the security of goods, the lender in no way required that the money should be invested in the handling of this commodity. His sole interest was in the selling price of the commodity pledged.
The first attempt to provide a somewhat different interpretation, when analysing credit turnovers, was made by the Russian
62   Credit in the Peasant Economy
Table 13 Rates of reproduction of capital among groups with differing areas under cultivation (Starobelsk district)
Area Expenditure Expenditure on capital   
under on reproduction formation per 100   
cultivation of capital roubles of expenditure   
(Desyatiny) Total including
expenditure on personal needs   
0.05- 3.00 87.31 31.32 48.8   
3.01- 7.00 208.38 58.71 68.9   
7.01-15.00 472.40 150.32 96.2   
15.01- 894.29 309.62 112.7   
Average 398.76 131.90 92.5  
economist, V. Kossinskii; and what occasioned it was the study of co-operative credit in Germany.
V. Kossinskii started out from the assumption that capital advanced on credit to a borrower goes through a productive turnover in the latter's household in accordance with Karl Marx's classic formula: D - T - D + d, where at the end of the resulting cycle the sum of money D is returned to the borrower together with an amount of surplus value realized to the amount of d. Part of this surplus value represents interest on the loan, while the other part of the surplus value d is retained as the borrower's income and represents his capitalist motive for using the capital which he has borrowed.
According to this theory, the success of a credit transaction depended on the success of the cycle of capital circulation; and the loan itself was economically secured not by the borrower's property, which only came into the picture in the case of bankruptcy, but by the very success of the circulation of the capital obtained by the borrower, which made it possible to realize not only the value D but also the surplus value d. Therefore, according to Kossinskii's definition, credit was an example of 'the circulation of capital in an enterprise owned by somebody else'.
Kossinskii's theory, which made a powerful impression on the economists of his time, did provide a correct basic idea for elaborating the problems of credit; and it was immediately recognized as a basis for the granting of co-operative credit for the purposes of production. Its primary weakness was its too formal interpretation of Marx's formula. A reader who lacked knowledge of
Credit in the Peasant Economy  63
practical life might suppose that capital advanced on loan had the nature of some kind of mystical substance which, as it circulated through the cycle of production, continued to preserve its distinct identity; and that it would - always, in every case, automatically and without any effort by the particular borrower - end up by producing D 4- d.
In reality, however, the process of capital circulation is much more complex. Capital loaned for production (D) has - at the moment when it exists in the form of money - got a certain money value and continues to do so when it is converted into the initial means of production and raw materials, since at this stage all the means of production which are purchased are equal in value to the value of the money spent on purchasing them: that is, their value is determined by the current market situation, which reflects the social relation­ships existing in the country's economic life at the moment of the purchase. However, from the moment when the production processes begin, when the initial means of production and raw material cease to appear in their original condition and become half-finished products, they also become things and not values. They constitute the T of Marx's formula calculated, however, according to units in kind. If for any fortuitous reason the production process has been interrupted before the cycle is complete, the realization of all these 'things' on the basis of current market prices will never give us the full amount of the capital expended. The 'things' of our production process cannot acquire the valuation which concerns us as organizers of production until the production cycle has been completed - when we have finished products ready to be sold, that is, commodities which we have produced.
Their sale on the market (or market valuation) provides us with a fresh sum of money. But this sum cannot in any sense represent the mystically revived abstract substance of the original capital D, because the market valuation of the commodities obtained is not made in relation to the same commodities which were the yardstick for the original valuation; and, above all, it was made at a different moment in time and in an already different market situation, since the production process cannot assume a static national economy.
What happens from the market's point of view is not the restoration of the value of the old capital Dl in terms of book­keeping records and calculations, but the creation of new money capital D2. If the product which we have produced remains as socially necessary in the country as it was at the time when we drew up our production estimates, and if the production costs incurred were no higher than those currently dictated by the interplay of socially necessary economic factors, then the system of market
64   Credit in the Peasant Economy
prices guarantees that, in our particular case, D2 will be greater than Dl; that the sum of D2, when realized, can be divided into Dl and d; and that Dl can again be invested in a new production cycle.
Thus, when examining the process which is, not quite correctly, termed the process of capital circulation, we have the following series of conditions on whose successful fulfilment and appropriate combination the success of the entire production cycle depends.
1. The availablity of a certain money capital, Dl.
2. The acquisition - out of the sum of money D advanced for the production of capital - of the necessary means of production and raw materials; and the hire of manpower at prices which do not exceed the estimates of profitability.
3. The use, in the process of production, of the 'things' which have been bought and of labour with the technical skill and success needed to ensure that the cost of the end product T is no greater than its socially necessary cost.
4. The sale of the end product at currently prevailing prices corresponding to the social conditions in the country's economy at the time when the manufactured commodities are sold; and the formation of a new sum of money D2.
5. The allocation - out of the sum of money D2 obtained from the sale of the commodity - of fresh capital to be advanced for the continuation of production at the same level. This will be on the same scale — Dl — if market conditions are unchanged; or D3, in the event of conditions having changed.
6. The division of profits (on the principle d = D2-Dlord = D2 — D3) between the sum which the owner takes out of the enterprise and the sum which he allocates for the expansion of the farm's capital.
Marx's old formula has been translated, in the above case, from static into dynamic terms. When modified in this way, it really can, as V. Kossinskii rightly supposes, prove invaluable for an under­standing of the credit turnover and its importance in the outlay and renewal of capital circulating in production. It is, however, necessary to note certain distinctive characteristics which the process of circulation we described acquires in the case of market-oriented peasant households which do not use hired labour.
All work in such a household is performed by the manpower of the family itself. This means that wages - actually paid out at levels spontaneously and objectively determined by the labour market in accordance with the social relations currently prevailing in the country's economic life - do not exist as a real economic
Credit in the Peasant Economy   65
phenomenon in a peasant family household. Expenditure on personal needs by those working in a peasant household represent not the spending of an objectively determined wage, but the earmarking for the given item of a part of the household's overall income, which is also used to finance the renewal of capital. Because of this, the process of capital renewal in peasant family households is linked to the level of well-being attained in the given year.
Indeed, if we are speaking of real economic phenomena, the gross income of a capitalist farm can be broken down into the sums spent on the renewal of capital (renewal of the means of production and of the wages fund) and pure profit. If the production cycle has turned out to be so unsuccessful that gross income not only fails to yield any profit but fails even to achieve the renewal of capital, then the entrepreneur, unless he can draw on credit, is obliged to curtail the renewal of his capital and thus curtail production itself.
The situation is somewhat different for a market-oriented peasant family household, whose gross income divides into three parts: 1. The value of the renewal of the material means of production, as objectively determined by the market; 2. the family's personal consumption; and 3. sums set aside for the purpose of capital accumulation.
In the event of a fall in gross income - as in the case of a farm organized on capitalist principles - one of the first results will be a reduction of capital accumulation. In the event of a further drop in gross income, a family farm, unlike a farm which pays wages, can continue to maintain the volume of activity at the old level, by cutting personal consumption so as still to pay for the complete renewal of the material part of its capital. As is shown by a statistical analysis of budgets,2 this renewal of capital at the cost of reducing consumption continues for a fairly long time; but it does so only up to a certain point, beyond which there is a parallel reduction in both cases.
This special characteristic of the peasant household considerably enhances the ability of peasant households to renew their capital and makes it easier for them to recover from economic crises.3 We must, of course, take this, too, into account when examining the forms and conditions for the granting of credit to peasant households.
Another, and no less important, special characteristic relating to the renewal of capital in peasant households arises from a further fact which stems from the small scale of the enterprise.
In the preceding tables, we showed the rates of wear and tear and of the corresponding renewal of basic capital. In terms of national economic aggregates, involving hundreds and thousands of house­holds, these rates have the actual significance of actual expenditure continuously undertaken every year. A thousand peasant households
66  Credit in the Peasant Economy
possessing, let us suppose, 2,000 ploughs may be expected, according to the law of large numbers, to discard and replace 250 ploughs every year; this proportion remains significantly stable from year to year and corresponds to the percentage of amortization.
In large farms, which comprise hundreds of items of stock, annual expenditure on the renewal of capital will, by virtue of the same law of large numbers, also be relatively constant and continuous from year to year. But we find something different in the case of the small family enterprise whose items of stock consist of only a few units; and where the annual rates of renewal (amortization) are expressed as proportions of an item. In this case, the discarding of old items and the acquisition of new ones is far from being an annual occurrence. The renewal of capital over a number of years may be equal to zero; and subsequently, in some one particular year, it is reflected in figures which are many times higher than the normal percentage for amortization, even in large farms.
This creates difficulties for the peasant household, particularly when one takes into account the inherent link already pointed out between the process of capital renewal in peasant households and their personal budgets. During years when none of the items of the means of production requires replacement, the peasant household usually sets absolutely nothing aside 'for capital amortization' and consumes the part of the income defined for this purpose by the relations between the market prices. In years when such replace­ment becomes unavoidable, the scale of the expenditure on renewal is many times greater than the percentage of amortization and represents a substantial and burdensome deduction from the earned income and, therefore, from the consumer budget.
This is why the process of capital renewal is much more difficult for a peasant household than for a large-scale privately-owned enterprise, and why it is, to a considerable degree, more dependent on the availability of credit or the postponement of payments in order to convert renewal at irregular intervals into more evenly spaced annual payments.
Summing up our analysis, we have to regard the process of circulation as normal when it entails a fully completed process of capital renewal at the centre of all economic activity. V. Kossinskii's formula that 'credit is the circulation of capital in an enterprise owned by someone else' has to be supplemented, by pointing out that the success of this circulation depends on the process of capital renewal being fully completed by the end of the economic cycle, and within the period for which the loan was granted; and since the credit is in the form of money, the renewal must have been carried to the stage where this capital can be converted into money.
Credit in the Peasant Economy   67
Up to now we have been discussing ways of maintaining a household's capital in an unchanged condition, by constant renewal. However, a peasant household never remains in an unchanged condition, but is constantly altering its scope, either because of changes in the state of the market or because of changes in the composition of its family. Therefore, in addition to the task of renewing capital, we come up against the problems of expanding it. It should be noted here that the need for such expansion often arises not only because of the organic growth of the family and the household, but because of all kinds of changes in the organization of production techniques.
The transition from manual threshing to the threshing machine, from the use of cattle for manure to their productive use, etc., all these changes make it necessary to improve the way labour is equipped with the means of production; and make it necessary in the case of a market-oriented capitalist farm to improve the organic structure of the capital.
In other words, it becomes necessary to increase the farm's capital not only in relation to the farm taken as a whole, but in relation to every individual unit of the farm's manpower. Such an improvement in the way labour is equipped will itself serve a purpose only when, as a result of this, the family's manpower begins to earn a more abundant livelihood and/or gets a greater opportunity for capital accumulation. This increase in income, as a result of the household becoming more capital-intensive, subsequently makes it possible not only to finance the renewal of the part of the capital which has been freshly created, but also to recoup the original outlay.
These are the considerations that determine the profitability of investing fresh capital sums in the economic turnover. It is perfectly obvious that after an estimate has been made of the profitability of making new capital outlays, the basic question then arises: where are the funds for this increase to be obtained?
We must acknowledge that, in this case, the capital increment can be obtained by the same means as outlay on ordinary capital renewal - that is, by a deduction from income. Here, the deduction for growth has to be added to the normal deductions for the renewal of obsolete items of capital. In most cases, the peasant household, particularly in years when the harvest is good, is in a position to make such deductions, sometimes even at the cost of slightly curtailing its consumption. But cases are quite common when the unsatisfied needs of consumption are so acute that they swallow up the entire income earned by the family's labour, leaving no opportunity for deductions from income. In that case the household is left with only one way of enhancing its capital - by using credit.
68   Credit in the Peasant Economy
From the foregoing analysis, we can see two cases where credit is relevant to a peasant household:
1. The case where owing to the unevenness of the process of capital renewal in the peasant household, the current replacement of means of production involves a painful cut in the family's food budget; and where, thanks to the availability of credit, a large item of one-off expenditure is spaced out over a number of years and is converted into a series of redemption payments with interest. The loan is repaid in later years out of the ordinary general fund for capital renewal. However, the period for repayment does not necessarily have to be the same as the period for amortization, but can be shorter. In this case the role of credit is in effect to maintain the household's capital.
2. The case where, for one reason or another, the household needs to increase its capital, but is unable to pay the initial outlay through deductions from the household's usual income earned by its labour. In this case credit enlarges the household's capital; and both the loan and interest are repaid out of the increase in the household's capacity for capital formation.
There are also certain other possible cases which are encountered in practice in the peasant economy. There is, for example:
3. The case where the borrowed capital is invested in a productive commodity which does not depreciate during the production process, but remains, so to speak, in use and does not lose its value; as a result of which the loan is repaid by selling this commodity on the market. (For example, where a peasant borrows money to buy a cow and then, having profited from its milk during the season, sells the cow and repays the loan out of the proceeds of the sale.) In this case, it is only the interest on the loan which is paid out of the funds for capital renewal.
Finally, a very special situation arises in:
4. The case where the funds borrowed are not used for production but are spent on the needs of consumption; and where the debt is subsequently repaid out of the household's general income, thereby reducing the household's capacity for capital renewal.
When studying the money economy of the peasant homestead, we can nearly always note periods of an acute shortage of money and periods when the household is comparatively well provided with
Credit in the Peasant Economy   69
cash. This phenomenon, which can be observed in budgets where there is no shortage of money at all, is the result of the fact that the money receipts and expenses of a peasant homestead are by no means evenly spaced out over the months of the year, nor do they dovetail with one another.
In order to grasp this aspect of the role played by money in the peasant homestead, it is enough to look at Figure 2 - based on the results of a special questionnaire - which shows how money receipts and expenditure in peasant households in the Moscow province were spaced out over time.4
A good picture is also provided by data on the Chernigov province in a book by N. I. Kostrov, which shows the following distribution of money payments and receipts for each third of the year, expressed in percentage terms:
Table 14
First Second Third Total   
Third Third Third   
Expenses 27.1% 46.9% 26% 100%   
Sales 5.8% 15.2% 79% 100%  
Figure 2: Movement of money resources during different months - Moscow province
Cash Balance   
s \            />                  \   
\                     / \                   / \                / \ \          /
/ NN       /'           Receipts
/'                  N /'                    N /'                       N   
/                 ^-----
/       \     ^""^
/ ^^^^;             Expenditure  
Jan   Feb   Mar  Apr   May  Jun   Jul   Aug   Sep   Oct   Nov   Dec
70  Credit in the Peasant Economy
We can see that expenditure is at its highest in the spring months and that receipts are at their lowest in the autumn months. This discrepancy gives rise to a whole number of special credit operations which we could call balancing operations, since they enable the peasant, without disturbing his economic system, to balance money receipts and expenses which arise at different times.
Let us suppose that in May the peasant needs to incur expenditure of 25 roubles. He might cover this by selling a couple of calves and fetching for them a price of some 30 roubles. However, this sale cannot be considered advantageous, since in the following September these same calves could be sold for 70 roubles. It is clearly more advantageous for our peasant to finance the 25 rouble expenditure through a loan which can easily be repaid together with all interest by the autumn sale, which would also yield a considerable profit over and above the repayment of the debt.
We can, incidentally, bring balancing credit within the classification of the types of credit examined above. But in order to do this, we have, notionally, to divide the personality of the householder into two; and to see him as buying goods from himself out of borrowed money in the hope of making a speculative gain from this purchase as a result of the expected change in price. This kind of interpretation is formal and tentative, however, and it can add nothing to our understanding of the process.
Such are the uses of credit which can be observed in the peasant household. It is not hard to see, after analysing them, that the peasant household is fully capable of making a proper and timely repayment of credit advanced to it, on condition that the resources which it obtains are productively channelled in the proper way into profitable economic operations. In this case the production turnover provides the creditor with guarantees which are no worse than secured property. It must, however, be recognized that this 'productive purpose' is of value only where the conditions on which credit is granted, and the ways in which it is organized, are adapted with precision and flexibility to the production processes of peasant households; and when every item of expenditure out of the capital borrowed genuinely enhances the household's capacity for capital renewal. All this undoubtedly confronts the organizers of co­operative credit with an extremely subtle and complex organizational and economic problem.
Credit in the Peasant Economy  71
1. For reasons which we do not know, expenditure on purchases was three times less than the norm, with the result that in this year worn-out capital was not fully replaced.
2. For evidence see A. Chayanov, The Theory of the Peasant Economy, Madison, 1982.
3. It was precisely for this reason that the celebrated agricultural crisis in Europe at the end of the nineteenth century was more easily endured by peasant households than by capitalist agriculture.
4. A. Chayanov, Opyt anketnogo issledovaniya denezhnykh elementov krest'yanskogo khozyaistva [The Experiment of a Questionnaire Survey of the Pecuniary Elements in the Peasant Economy], Moscow, 1912.
Co-operative Credit Societies
Co-operative credit societies evolved over many decades. They evolved independently of the influence of those subtly elaborated theoretical premises relating to small-scale credit which we now have and which were developed by scholars in recent years, at a time when all the most important foundations of co-operative credit societies had already become finally established. Spontaneously and gradually, without any consciously conceived plan of construction, they developed their own principles and traditions, in practice moving forward from the concrete solution of one particular problem to the solution of another.
Through the gradual selection of viable principles of organization and forms of work, and through the demise of other forms which were inapposite, there emerged those basic Principles of Raifeizen, which constitute the foundation of the entire structure of co­operative credit societies.1 It should at the same time be noted that most of these basic principles were conceived by their original authors for an entirely different purpose and for the solution of problems which differed from those that had to be solved in reality.
We saw in the last chapter how acute is the peasant household's need for credit; and we also know on what foundations such credit can be based. It is now necessary to examine what kind of credit apparatus can help to make this necessary credit accessible to the small family producer.
With regard to the existing forms of granting credit we can, with reasonable clarity, divide credit transactions into two large groups. On the one hand, we can observe the extensive area of credit relationships which are organized as their own kind of international

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