Friday, May 30, 2014

5 ALEXANDER CHAYANOV The Theory of Peasant Co-operatives

commodities as a whole, relative to those of the industrial commodities which it acquires.
In the same way as the skilful and successful organization of a trading operation can lead to a considerable increase in profits, so the skilful organization of the peasant money economy - that is, its purchases and sales - can be very advantageous to the family carrying on the economic management of a household and can enhance its level of well-being. The art of buying a commodity of an appropriate quality at the right time and at the right price or of selling one's products to a substantial purchaser who can take them without cheating over weights and can pay a 'real' price corresponding to the quality of the goods - this art is of great value to a family farm. The proper and skilful organization of purchases and marketing is no less beneficial to such a farm than is the skilful management of agricultural production itself.
Before making any generalizations on this subject, we think it essential to familiarize ourselves empirically with the ways in which different kinds of peasant household organize their money turnover.
The Budget Studies of peasant households, which have been carried out in many different parts of Russia, have shown great diversities in the structure of the money economy. In order to reduce all types of receipts and expenditure to a common denominator, we shall first of all divide them into those that are natural - that is, obtained from the household itself and consumed within the household or expended on the needs of production; and those that take the form of money, that is, receipts from selling one's own labour or the products of one's labour, and expenditure involving the payment of money in order to acquire goods; or expenditure on production or personal requirements.
We can see, by looking through Table 18, that the money budget of the families of middle peasants fluctuates around the level of approximately 200-500 roubles within an overall budget of 700-1,000 roubles; so that 25-50 per cent of the budget is based on money transactions. In other words, the income and level of well-being of a modern peasant family are dependent to the extent of one half of its ability to organize its money economy. If the peasant is able, as a result of this skill, to obtain an increase of 10 per cent in the price at which he sells the products of his labour and can use the money so earned in order to buy 10 per cent more of the goods required for the everyday needs of the farm and of the family, then his trading skill will have brought him an overall increase in the level of his well-being equal to one-fifth of his money budget or about one-tenth of his overall budget. And this increase can often be of decisive importance in making it possible to renew or expand the peasant household's capital.
Table 18  Receipts and expenditure of peasant households in money and in kind
Name of Receipts Expenditure   
district In In Total Percentage In In Total Percentage   
kind money based on kind money based on   
money money   
trans- trans-   
actions actions   
Volokolamsk 670.0 528.1 1198.1 44.2 554.9 500.1 1055.0 47.3   
Gzhatsk 451.9 247.0 713.9 34.4 463.2 251.1 714.3 35.2   
Porech 621.0 198.6 819.7 24.2 628.0 198.6 826.7 24.2   
Sychev 485.5 288.2 773.7 37.3 488.0 284.1 767.1 37.0   
Dorogobuzh 650.1 180.3 830.4 21.7 640.2 213.4 853.6 25.0   
Starobelsk 568.1 442.0 1010.1 43.7 499.0 436.5 934.5 47.7   
Vologda 238.5 209.6 548.1 38.3 238.7 217.7 556.4 39.1   
VeTsk 361.2 121.9 438.1 27.8 317.0 123.5 440.5 28.0  
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Table 19 Total money incomes and money incomes from trade for an average peasant household (in roubles)
Provinces Total Including Income from Total income   
and money individual trade and from crafts   
Districts income employ- and craft and trades   
per ment in enterprises in percentages   
house- crafts and   
hold trades   
Vologda 229.1 89.1 5.9 41.5   
Novgorod 252.5 86.7 24.3 43.6   
Smolensk 301.6 99.8 9.2 36.2   
Kostroma 263.5 140.1 9.5 56.8   
Vladimir 515.9 295.0 - 57.1   
Moscow 704.8 302.4 36.8 48.1   
Tula 256.1 111.5 18.6 50.8   
Ryazan 289.2 133.3 23.4 54.3   
Voronezh 169.9 41.9 0.1 24.7   
Penze 152.7 40.6 4.3 29.7   
Tatar Republic 148.8 57.4 11.6 46.3   
Saratov 224.3 33.6 3.1 16.4   
Armavir 439.2 56.8 1.6 13.3   
Novonikolayev 168.8 45.6 27.0   
Barnaul 218.5 44.6 27.0 32.9   
Chernigov 160.7 34.1 28.1 38.5   
Berdichev 152.5 26.0 - 17.1   
Poltava 198.5 26.6 38.6 32.9   
Starobelsk 196.8 59.0 18.7 39.4   
Turkmenistan 433.7 49.1 13.3 14.3  
The drawing-up of the money budget, as we shall see below, is a far from easy problem for the peasant household and, once again, it has been little studied. Our own budget studies indicate that the structure of this budget may be of very various types.
In most Russian peasant households money receipts from the sale of agricultural products are supplemented by receipts from the sale, outside the household, of the labour which for some reason cannot be utilized within it. Earnings derived from trades play an outstandingly important role in the Russian peasant household. Market conditions, as well as the local economic situation, will sometimes increase and sometimes reduce the extent to which individual sectors of the economy are oriented towards the market;
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the main source of money receipts will sometimes be agriculture and at other times cattle-rearing. But income derived from trade nearly always represents an impressive proportion of money receipts.
Even now, when crafts and work away from the village have by no means been fully restored, money receipts connected with them nevertheless occupy a very prominent place in our peasants' budgets. Thus, for example, a budget investigation carried out by the Central Statistical Board (TsSU) in 1923-4 provided the data shown in Table 19.
We can see how varied is the structure of the money budget, depending on the economic situation which surrounds the household. The household seeks to rely for its money turnover sometimes on the sale of flax and at other times on disposing of its cattle or its grain. But most commonly of all, unfortunately, it relies on hiring out its own labour for the purpose of earning money. Despite the dysfunctional nature of this method of solving the problem of organizing the money budget, it is widely encountered and can take extreme forms.
Agricultural households, despite the great importance of money transactions in their consumer budgets, nevertheless remain to an exceptional degree based on a natural economy. More than that: agricultural output not only fails to provide cash, but the maintenance of this output requires considerable expenditure out of earnings derived from non-agricultural trades.
It is scarcely necessary to point out what hardship such a system causes - not only to the economic life, but also to the social life of our countryside. Adult men are away from their families for periods of five to six months or even longer, leaving the farm to be run by women who are not physically strong enough to do so adequately. The Russian peasant woman ploughs the fields and does the mowing as well as threshing the grain. There are a good many families in which the men have grown utterly unaccustomed to agricultural work and who, as their wives say, 'do not even know how to harness a horse'. A 'women's household' which is feeble has little productive potential and is of little value from the point of view of the national economy.
There is no doubt that one of the main factors which gave rise to this type of structure, especially in industrial areas and areas of agrarian overpopulation, was the shortage of arable land. This shortage prevented the peasant family from making ends meet within the existing system of farming and compelled it to send its surplus manpower into non-agricultural trades.
However, even if the family had been able, through strenuous effort, to earn an income from agriculture which was sufficient for a
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livelihood, nevertheless - given the pre-war level of prices for agricultural products - the peasants would have had many reasons for abandoning agriculture. The most important of these reasons was the higher remuneration of labour outside agriculture. Once a peasant labourer got the opportunity to earn 1V2-2 roubles per working day outside agriculture, he naturally 'had no time' for agriculture which paid him only 70 to 80 kopecks for the same day's work.
These have been the two most important factors which lead to the break-up of the agricultural way of life in our countryside, which drive its population into seasonal work and flood our cities with cheap, semi-skilled manpower and an army of unemployed; and which give to our urban working class a character which is half-proletarian and half-peasant. The resulting situation can be eliminated only when agricultural production becomes the most advantageous of all possible occupations for a peasant family.
It is obvious that such a return by the population to the land will be possible only when:
1. The relative price level for agricultural products rises to the point where the remuneration of labour employed in agriculture is higher than its remuneration in other occupations; and
2. The organization of agricultural output is rationalized and intensified to such a degree that the existing peasant allotments are able to earn incomes sufficient to meet the family's consumer budget.
The first of these conditions depends to a considerable extent on the situation of the world market. But we still have to recognize that, where the market situation remains constant, the level of selling prices depends to a great extent on the seller's ability to organize his sales and on the way that the money economy is managed. It is posssible to sell one and the same berkovetz [approx. 3.21 hundredweight] of flax in one and the same year either for 40 or for 50 roubles, depending on the skill of the seller.
How then can this skill manifest itself? How is the peasant able -by improving the organization of his purchasing and marketing - to enhance the level of his well-being? To answer this question we have to assess the market relationships which link the peasant households with the world market. The improvement of these relationships is the purpose underlying the organization of the peasant family's money economy.
An attentive observer who follows the journey of a bag of flax or a sack of wheat sold by a peasant can usually discern a highly
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complex chain of social and economic interrelationships which arise as the commodity proceeds on its journey. The historical develop­ment of markets gave rise to a whole system of complex trading mechanisms for the purpose of conveying commodities from the producer to the consumer. These mechanisms evolved - in ways which depended on the nature of the commodity - into a whole series of consecutive links.
There is the small buyer and cattle-dealer, engaged in buying up commodities in the villages and at the bazaar. There is the local trader who already has his own warehouses for processing the commodities and grading them. There is the whole network of brokers, working for commissions or working on the stock exchange. There are the large wholesale firms and the exporters and importers. Alongside them are the ancillary enterprises related to transport, insurance and banking, which finance trade. There are the companies concerned with the investment of capital. And, finally, there are those who just speculate on the commodity stock exchanges, who trade on the rise and fall in prices. These are the specific agencies which, in their mutual rivalry, perform the complex role of conveying agricultural commodities from the producer to the consumer in a capitalist market.
The balance of economic factors, which is arrived at after many years of fluctuation, creates within each of the markets listed above a system of prices for all primary, intermediate and finished products, which ensures that every agency in the market receives an adequate profit from its work and that it therefore has a direct economic interest in doing the work in question. The representatives of commercial capital are able - through their skill and commercial adroitness - to obtain profits in excess of the level of normal profits, established by the correlation of prices; and this superprofit is usually obtained at the expense of the producers and the ultimate consumers, who are scattered and unorganized.
Such is the picture of market relationships in which the peasant family has to build its money economy; and such is the structure of market trading, created and consolidated by the practice of centuries. It is powerful owing to its degree of organization and its technical experience; and it has every incentive to obtain from the peasant the products of his labour at the lowest possible price; and to provide him with the means of production and consumption at the highest possible price.
The peasant household drawing up its money budget is confronted with the relentless pressure of powerful capitalist organizations which get their profits by underpaying for the products of peasant labour and overcharging for the commodities which the peasants buy.
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We are faced with the usual picture of the peasant masses being utterly in the grip of commercial capital and of a social and economic struggle to protect the remuneration for peasant labour. When defending its 'wages', the peasantry needs to strengthen its position in every way in order to obtain on the market the highest possible remuneration for the labour which it has invested in producing agricultural products, which it eventually exchanges for commodities bought on the market.
In order to strengthen his position in this bitter struggle the peasant has to try to ensure:
1. That his commodity is sold at a time of year when the state of the market is most favourable to the seller; that is, when its supply is limited, when it is acutely in demand and when its price is high. And conversely, the peasant must buy the commodities which he needs at times when they are in the most plentiful supply.
2. That the commodity being offered on the market is graded in a manner appropriate to its quality; and that it is packed and offered for sale in the kind of packaging which will lead the market to pay the full value of its quality. The correct valuation of a commodity by its purchaser may not uncommonly result in the virtual doubling of the producer's income from his labour.
3. That a commodity which may be subjected to primary reprocessing is offered to the market in the kind of reprocessed condition which will stimulate the greatest demand and result in the greatest remuneration for the labour invested in it.
4. That the household should, as far as possible, offer the commodity to the part of the market which is situated nearest to the ultimate consumer. Apart from getting fairer conditions for the acceptance of the goods in such a market, one can also expect higher prices, since in this case the peasant can by-pass the middlemen and take for himself the middlemen's profit which has been established by the balance of market factors. In just the same way, a farmer, when he buys goods, must try whenever possible to buy them at first hand in order to get a wider range of choice and lower prices.
5. Lastly, that the household should be flexible in its output, always capable of adapting the type and grading of the goods which it produces and capable of responding to constantly changing market requirements.
Such are the difficult tasks which face the peasant homestead when it organizes its money economy. A small, economically feeble peasant household needs to display exceptional energy, sense and
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skill in order successfully to solve even some of the tasks which we have set out. Some of them may be basically insoluble for a small-scale household.
For peasant households, therefore, there is only one reliable way out of the situation, and it begins to assume an exceptional importance. It lies in the possibility - through the organization on co­operative principles of many thousands of households - of enabling the peasants to create their own powerful, specialized organizations, which organize the peasants' money budgets by setting up their own large-scale trading apparatuses, which serve the peasants and are managed by the peasants. In this case, the peasants are resisting capitalist exploitation with its own weapons: powerful enterprises, large-scale turnovers and perfected techniques.
These powerful collective organizations are able, by attracting into their turnover resources from credit institutions, to carry out buying and selling operations at the times most favourable to the peasant economy. They can provide a commodity with the kind of grading and external appearance which no individual peasant would be able to do. In just the same way, by setting up butter manufacturing, potato-grinding, vegetable-drying and other co-operative factories, they can offer a commodity to the market in the kind of reprocessed condition which is most advantageous to the seller. And because this reprocessing is mechanized, it is considerably cheaper for the peasant than is reprocessing carried out in domestic conditions. It is unnecessary to add that co-operatives have undertaken buying and selling operations worth millions of roubles and have worked in the very largest wholesale markets. Therefore, they have been able to buy and sell at the most advantageous prices - and hand over to the peasantry the whole of the middlemen's profit.
Finally, the good knowledge of the market which co-operative centres naturally possess, as well as their ability to enlist the help of agronomists and technical specialists, make it possible for co­operatives to become a powerful factor which influences the internal organization of the economy and restructures the economy so as to make it conform more closely with market conditions.
Such is the exceptionally important assistance which co-operative principles can offer in the organization of the working peasant family's money economy. The ideas set out above are clear and are, at first sight, extremely easy to implement. However, it was only after nearly a century of organizational inquiries as well as thousands of distressing bankruptcies, that it became possible to hammer out the organizational principles to bring us close to solving the tasks set out.
But how should the member of a co-operative staff begin his
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organizational work? To what, above all, should he devote his attention? By what basic principles shoud he be guided in his struggle for markets? And to what should he devote his particular attention when studying the market from a co-operative point of view?
It must be noted first of all that when a member of a co-operative staff sets out to achieve co-operative intervention in the organization of the marketing of agricultural products, he must begin by considering in what order his work should proceed.
Peasant households in all parts of Russia produce and sell a whole number of varied agricultural products. There is no doubt that the ultimate aim of the rural co-operative movement is to organize the marketing of all these products on co-operative principles. But at the present time we have to confine ourselves to a task which is within our power; and we must direct all our efforts towards solving it, without wasting our effort on other endeavours which we know to be futile.
We have to select two or three products which, because of the way that their,markets are organized, can most easily be organized on co-operative principles, and which, at the same time, are of major importance for the national economy. It is on them that we have to concentrate our co-operative effort. Only if the work is organized in this way do we have any guarantee of success or are we able to gain the organizational experience needed for organizing the more difficult markets on co-operative principles at a later stage.
But on what principles should we choose the markets for inclusion within the co-operative system in the first instance? We know that the methods of co-operative research into markets have up till now by no means been adequately developed; and it is therefore extremely difficult to give a complete answer to this question.
However, the practice of co-operative work does make it possible to identify certain fundamental stages which have to be passed through when we seek to ascertain how easily a market can be organized on co-operative principles. While acknowledging that marketing co-operatives will, at the initial stage of their work, always be short both of resources and of technical trading experience, we must nevertheless note those market conditions which are conducive to a co-operative's success.
Thus, if we turn our attention to trading technique, we can very confidently say that the greater the homogeneity of a product and the more it is susceptible to depersonalization, the easier it will be to organize the product on co-operative principles.
The more stable the quality of the product and the greater its homogeneity, the easier it is to conduct trading operations in the product. This is a matter of particular importance for those co­
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operative staff workers who still lack experience in matters of trade. If the product in question is not absolutely homogeneous, but represents a whole range of varieties and grades, then we can, for the same reasons and with equal confidence, assume that the organization of the marketing of this product on co-operative principles will be all the easier, the more stable its grades and the more easily it can be made subject to classification and selection. If the grading of the product is easy and if it is subject to firm standardization, this will be a guarantee of success for co-operation.
It is enough to give two or three examples, in order to explain the propositions just put forward. Thus, for example, we assume that the marketing of hens' eggs can easily be organized on co-operative principles because the collection and grading of this product do not require very much technical equipment and those who work in co­operatives will very soon be able to bring the grading system up to the technical level established by commercial capital.
Conversely, the inclusion of flax in the co-operative system presents extraordinary difficulties; since a product which comes from one and the same farm is often exceedingly diverse; its grading is made more difficult by the absence of any precisely established standards and by the difficulty of precisely ascertaining the quality of the fibre without complicated adaptations. The grades of flax will vary over small areas; and one and the same grading description may, in different years, refer to goods of different quality. It can therefore be confidently assumed that the organization of flax on co­operative principles will get into its stride only after the question has been satisfactorily resolved of how to organize the grading.
If to these prerequisites for the success of co-operative marketing we then add the prerequisites for the safe preservation of the product - and if we say that the organization of the marketing of a product on co-operative principles will be easier, the less the product is vulnerable to damage - then we shall have outlined the whole range of technical conditions which the co-operative staff worker has to take into account.
It follows from this last rule that a co-operative staff worker who lacks sufficient experience will have difficulty in coping with such refined commodities as flowers, live poultry, fruits, sucking-pigs and other things that need special care and need to be sold quickly.
We are then faced with a number of economic problems. We must first take account of the general character of the market which we are organizing on co-operative principles. We have to be clear as to whether it is a local market (trading, for example, in milk, hay, vegetables, and so on); or whether it is a market of a regional kind (trading in fruit, cattle, firewood, and so on); or a market of global
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importance (trading in wheat, butter, eggs, and so on).
The size and breadth of the market is one of the most important preconditions for its organization on co-operative principles. We may assert that the co-operative organization of the marketing of any product whatsoever will be easier, the greater the absorptive capacity of its market. Indeed, in a small market where demand can be fully satisfied extremely rapidly, any fortuitous accumulation of a product will overload the market and lead to a drastic fall in prices and extreme difficulty in disposing of the product.
An example may be provided by the market for fresh milk in a small town. The first dairy partnership in the town finds an adequate market. But as its business develops, it saturates the town with milk with the result that prices fall so that the co-operative has to change over to supplying butter - a product for which there is a wider market. This kind of unevenness in marketing conditions can be handled only by a flexible entrepreneur who is prepared to gamble. But it certainly cannot be handled by a not very experienced co­operative organizer who requires that marketing conditions should be stable.
Professor M. Tugan-Baranovskii, when comparing the success of village co-operatives with the failure of craft co-operatives, had seen this as the direct result of the fact that a successful farmer is supplying an unlimited global market, whereas a craftsman is supplying a narrower, local market.
Apart from the breadth and capacity of the market, a great deal also depends on the degree of flexibility in the consumption of the product. How is this term to be understood? We shall try to clarify it through the following obvious examples.
If we compare the quantities of bread which different people consume, we find that they are very similar to one another. The difference between being underfed and being fully satiated is equal to no more than a rate of 2-3 poods [approximately 72-108 lb] per year. Neither a rise in prices nor a decline in well-being can lead to any drastic change in the consumption of grain products. The levels of bread consumption remain not very flexible. Therefore, the slightest interruption in the supply of grain commodities on the market causes an acute need for bread, a sharp competition between buyers and a rise in prices. Conversely, any surpluses, unless they can be exported to other areas, result in unsold stocks and a sharp drop in prices.
If, as a rule, we do not notice any sharp fluctuations in grain prices, the explanation lies in the extraordinary size of the grain market, as a result of which shortages in one region are made good by surpluses elsewhere. In the case of vegetables, the consumption
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of which is also not very elastic, such drastic price changes can be observed very frequently.
We see a different state of affairs when we study, for example, the markets for sugar or cotton cloth, where the rates of consumption are characterized by an extreme flexibility. The consumption of these products when they are in short supply may drop to the barest minimum; and subsequently, when supplies increase, consumption may rise tenfold or more. Such an elasticity in the rates of consumption enables the consumer to be extremely sensitive to any change in price - reducing his consumption at the slightest price rise, while significantly increasing his consumption when prices fall.
One result of this flexibility of consumption is that when large supplies accumulate on the market, it usually needs only a small drop in prices for the consumers to liquidate the surplus by increasing their consumption. It is obvious that the greater the flexibility of the consumption of any particular product, the greater the capacity of the market for that product will prove to be.
Apart from territorial breadth and flexibility of consumption the capacity of the market for any product is greatly affected by the social composition of its consumers.
If a product is consumed only by the prosperous stratum of society (as in the case of expensive fruits, flowers, silk, and so on) then, despite the possible breadth of the market and the flexibility of requirements, the market will continue to have only a small capacity, because the total number of its consumers will be very small. It may therefore confidently be assumed that the greater the extent to which a product is consumed by the population at large, the greater will be the market's absorptive capacity.
Thus, for example, during the years immediately before the war, the Siberian Alliance of butter manufacturing partnerships [arteli] was already having some difficulty in marketing butter, because its consumers in Western Europe came from the prosperous strata of the population, whose numbers were limited. However, the middle or poorer classes used coconut oil or margarine. The leaders of the Alliance therefore began to think about reprocessing Siberian milk not into butter but into cheese, whose main consumers in the West were workers, and for which there was therefore an unlimited market.
In summarizing what has just been said about the absorptive capacity of the market, we could slightly modify our propositions and point out that the organization of marketing on co-operative principles will be easier, the greater the stability of the prices of the product which is made subject to co-operative control.
Apart from the wide capacity of the market and the positive
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technical attributes of the commodity in question, the successful co­operative organization of marketing depends to a great extent on the conditions of the commercial organization of the market itself; and on the kind of trade routes along which the commodity travels on its way from the producer to the ultimate consumer.
The production of agricultural goods is usually scattered over an enormous number of small households. An individual household produces goods and disposes of them on the market in small quantities only, and in the case of such products as eggs, poultry, hides, etc., in only a few units or dozens at a time. So far as the pre­war period was concerned, we may note five main stages through which agricultural goods passed on their way through the market.
1. The commodity which was originally scattered among individual producers was collected by a number of buyers and cattle-dealers and became concentrated in their hands.
2. The commodity collected by the buyers underwent a crude grading and was transported from its assembly points to the local centres of wholesale trade.
3. At the wholesale centres, the commodity was further graded and sorted for dispatch to more remote destinations.
4. The commodity was sent on to consumers' wholesale centres.
5. From the consumers' wholesale centres, the commodity reached the consumer via the trade distribution network (local shopkeepers and other traders).
This was the general pattern: it varied greatly for each particular commodity and acquired its own peculiarities.
Thus if, for example, we take a product such as hay, the organization of its market should be regarded as extremely simplified. In most cases, the commodity passed directly from the producer to the consumer; and the middlemen supplying hay to the urban markets were few in number, if they existed at all.
The meat trade - for example, in the meat market in Moscow in earlier times - presented a totally different picture. Livestock which had been fattened in landowners' estates or peasant households was bought up on the spot by cattle-dealers who then transported it to one of the cattle markets in Moscow. At the market, the cattle changed hands among the large-scale traders - the so-called brokers [komissionery], who exercised an almost total control over the Moscow market. They re-sold the cattle to the so-called 'bull-slaughterers' [bykoboitsy] who slaughtered the cattle and, having separated the remains into carcases, hides and tripe, sold the hides to leather-dressers, the tripe to factories making gelatine and other
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by-products, and the meat to large and small firms of butchers and to canneries.
It should, however, be remembered, on the one hand, that commercial capital completes not one but several trade turnovers every year; and, on the other hand, that wholesale traders very frequently lend capital on credit both to buyers and to traders. For these reasons, distributors are able to move large consignments of goods through the market by using capital which is worth less than the consignments themselves. This led to an enormous saving of capital; but it also led to a considerable complexity in credit relationships; and those who lent money acquired an extensive power and influence over the entire market and its life.
We have seen how in the past, both in the grain trade and in certain other kinds of trade, large wholesale firms gave credit to -and literally enslaved - local traders who would collect a commodity, giving credit in their turn to the producer and to those commercial consumers (factories, shops, and so on) who then conveyed the product to the ultimate consumer who also relied on credit.
Thanks to the intervention of banking capital in the trade turnover, the dependence of local traders on wholesale dealers at the centre has been considerably reduced; and the market for many goods has ceased to be a virtual monopoly. Thus, for example, the grain market had previously been totally dominated by very large firms. But later, immediately before the war, thanks to the availability of bank credit and elevator technology, the small-scale entrepreneur got the opportunity to operate, and to do so autonomously.
The nature of the market's financial organization, as well as other peculiarities of the market structure, is of enormous importance for the organizers of co-operative marketing.
It is obvious that when setting out to organize the co-operative marketing of a given product, we have to be clear about how the product makes its way through the market in general; and we must ascertain beforehand the obstacles which have to be surmounted as well as the market conditions which can promote the success of co­operation. When making this study, we believe that it is essential to focus our main attention on the following questions:
1. It should be clarified, first of all, to what extent monopoly conditions exist in the part of the market which it is intended to organize on co-operative principles; and how sharp is the competition in this market between buyers and sellers.
A high degree of monopoly is an obstacle to the organization of the market on co-operative principles. An increase in the number of buyers and sellers will tend to favour co-operative marketing. In
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other words, the organization of the market on co-operative principles will be easier, the less it is dominated by monopoly and the greater the competition on that market between buyers.
In many markets, for example, those for poultry or pigs, it is the largest type of wholesale trade which is most dominated by monopoly. However, this cannot be described as a general rule, since in the case of many commodities, the local markets where the commodities are assembled are more dominated by monopoly than are the large wholesale markets. As a rule, however, the world market is the one which is least dominated by monopolies.
From this it follows that the organization of the market on co­operative principles will be more successful if introduced in precisely that part of the market where the conditions of competition are most favourable to co-operation.
2. In relation to the organization of marketing on co-operative principles, credit conditions are no less important than those of competition.
Credit facilities vary enormously for different commodities and in different parts of one and the same market. During the first stages of the collection of a commodity, all transactions are usually conducted in cash; and we sometimes even have cases where credit is given by the buyer to the seller. In wholesale markets there is the phenomenon of commodity credit, which is given by the seller to the buyer, as well as bank credit advanced on the security of goods. During the stages when the commodity is being distributed, it is extremely common for wholesalers to give credit to retail traders. Therefore, both at the stage when a commodity is being collected and at the stage when it is being distributed, there is the phenomenon of large-scale commercial capital giving credit to its clients; while this commercial capital, in its tum, draws on bank credit.
However, the availability of credit facilities varies for different commodities. Whereas in the cases of cotton and grain credit is widely available in all its forms, nevertheless in the cases of poultry, cattle and flax, credit operations have been little developed.
In the case of co-operative marketing, which is entering the market as a wholesaler, although not as yet fully established in the financial sense, it is obvious that work will be easier, the more widespread is the practice of cash settlements on the market.
3. The question of credit is closely bound up with the question as to how much capital is available to commercial enterprises engaged in marketing. There are some commodities (grain, hides, and so on), whose world wholesale markets involve enterprises which possess
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millions of roubles of capital. It is obvious that an infant co-operative movement can compete with such commercial giants only when all other circumstances are exceptionally favourable to it. And in the remaining cases it is obvious that the organization of the market on co-operative principles is easier, the less the amounts of capital being used on the market by private wholesale traders.
4. A not unimportant factor for co-operatives is the rapidity with which a commodity travels on its way through the market. Given the relative monetary weakness of co-operatives, any delays can be exceedingly damaging; and, therefore, commodities whose turnover is slow will be easy to organize on co-operative principles only if credit on the security of goods is readily available.
5. Finally, the techniques required for trading should not be overlooked.
A co-operative official who is not very experienced and who cannot, as a matter of principle, engage in trickery may not be successful for quite a time. Therefore, we would be absolutely right to assume that the parts of the market organization which are most easily organized on co-operative principles are those where trading techniques are the most elementary.
Such are the main conditions of organization which determine the success of marketing on co-operative principles. Besides these, there are certain aspects of production which are of great importance for co-operative marketing. Thus, for example, in the case of most commodities the level of demand is by no means the same throughout the year: there are seasons of heightened demand and seasons where demand declines. It is of the greatest importance that the main bulk of the product should be sent from the households on to the market via the co-operative at a time which coincides with heightened demand. If this dovetailing is not achieved, then co­operatives will face obstacles which will be difficult to circumvent. Thus, for example, co-operatives that sent milk to Moscow - where demand reaches its peak during the winter months - experienced many failures because their members kept to the practice of spring calving - so that their milk supplies were largest in the summer, that is when demand was at its lowest.
It is therefore clear that the organization of the market on co­operative principles will be easier, the greater the dovetailing between the time when a co-operative receives a product from its members and the time when demand for the product is at its height. If this condition is unfulfilled at the time when a co-operative is launched, then the success of co-operative work will depend on the
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flexibility response of the households who belong to the co-operative and on the speed with which they are able to adapt to market requirements.
In general, the flexibility of response of the households who belong to the co-operative is a powerful factor in the work of organizing the market on co-operative principles. This is because the combination, within a single institution, of wholesale trade and the guidance of production provides an opportunity of following market requirements and of acting with maximum speed to improve the quality of a commodity, and arrange for its primary processing or grading. This can sometimes fetch very high prices on the market and can win an excellent reputation for the co-operative 'trademark' as well as a regular clientele.
But as well as possessing flexibility, households must also possess an adequate degree of stability. They must at all times be able to guarantee to supply their co-operative with goods of a specific and stable quality - upon which the co-operative managers can base their trading calculations and commitments.
In short, we would hardly be mistaken if we were to say that the organization of marketing on co-operative principles will be easier, the greater the flexibility of response, as well as the stability, of the households which have joined in the co-operative.
Finally, it is scarcely necessary to remind our co-operative members of the most important condition of all for their success, without which everything else may prove to be ineffectual. This condition is known to every co-operative member. Its essence is the co-operative's awareness, loyalty and staying power, which enable infant co-operative undertakings to survive the difficult time when they take their first hesitant steps and make their first unavoidable mistakes.
However, while recognizing the exceptionally great, and irreplace­able, power of co-operative awareness and loyalty, we must emphasize that this social phenomenon evolves gradually on the basis of the principle of the direct responsibility of the organs of management to their members, a principle pursued over many years in the internal development of co-operatives; and on the basis of the trust which consequently develops.
But even in these conditions, co-operative organizers should never expose 'co-operative' loyalty to unnecessary strain. Still less can one appeal to such a loyalty when work is just beginning, when marketing co-operatives are at the early stage of development and when the masses still regard them with great scepticism.
The Basic Principles of the Co-operative Organization of Commodity Circulation
The organizational problem which faces the peasants when they undertake purchasing and marketing on co-operative principles is a simple one and it has been clearly identified by our earlier argument.
Under a co-operative system, the function of the commodity circulation in the national economy will remain exactly the same as it was before. All that is necessary is that this function should now be carried out by means of a different economic organization. A private commercial apparatus, which successfully ensures the circulation of commodities on the basis of the interests of the commercial capital invested in that circulation, has to give way to a co-operative apparatus. This organization performs the same task; but it is guided, not by its own self-contained interests, but by the interests of those peasant households which created it and which seek, with its help, to resolve the problem of organizing their commodity economy.
When setting up a new economic organization in the place of an old one, the peasant co-operators naturally had to rely on the age-old experience and practice which had evolved through the methods of the old commercial apparatus.
We know that commercial capital was able - as the result of many centuries of working experience - to devise for every kind of market and for every economic situation precisely the kind of commercial organization which could most successfully serve the requisite commercial purposes with the greatest economy of resources.
It is, of course, no accident that in one market a commodity passed on its journey through only one pair of hands, while in another market it passed through five pairs of hands. Nor is it an
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Figure 8: Outline of the organization of the market apparatus on co-operative principles
accident that in one market we find a large number of small traders with little capital, while in another market we find a limited number of traders each of whom, however, has considerable sums of money. Nor again is it an accident that in one case capital circulated rapidly, while in another case goods remained in the same hands for more than a year.
Each of these special circumstances was due to the nature of the commodity and of the market; and the commercial apparatus adapted its structure even to the smallest of these special circumstances.
A co-operative organizer who hopes to replace the existing commercial apparatus has to ascertain what function is performed by each component of this apparatus; and he has to decide what kind of co-operative organ will undertake the task of performing this function. The local cattle-dealer will be replaced by the local co­operative. The local wholesale trader will be replaced by the local territorial association, and the export office by the association at a higher level, as can be seen from Figure 8. As a result of this, the previously existing commercial apparatus will be replaced by a co­operative apparatus, with the same degree of labour specialization and with the same co-ordination of activities.
It can easily be understood that co-operative organizers should not
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slavishly imitate the commercial apparatus - which was not itself an ossified or immutable phenomenon, but which evolved with the changing economic situation. But different issues will require still greater changes. The local cattle-dealer and the local credit association are so unalike in their nature that the whole design is bound to be affected when an organizer turns from the former to the latter.
There is much that a co-operative can do more easily and more cheaply than a private trader. Conversely, a buyer is able to do many things which are entirely beyond the capacity of a co-operative organization. Therefore a co-operative organization, when it begins to take hold of the general idea of a trading apparatus - an idea that has developed over the ages - can bring about substantial changes in its forms.
Organizational forms are also bound to be affected by the fundamental difference between the nature of co-operative buying and selling and the nature of private trade. The difference, as we have already seen, is that co-operatives never conduct pure commercial operations, that is, they never make a purchase with a view to re-selling at a higher price. A purchase with a view to re­sale, which constitutes the essence of a commercial operation, is motivated and dictated by the difference between the purchasing and selling prices. For commercial capital, the absolute level of prices is of no very great interest.
The opposite is true of co-operative work which is undertaken either on its own or else for the purposes of joint purchasing or joint marketing. A co-operative apparatus engaged in this work does not, and should not, have any interests apart from those of the peasant households which created it. Therefore, in relation to the co­operative commodity circulation, the absolute price level assumes an exceptional and unique importance. Co-operative marketing must be organized so as to ensure that the peasant receives the highest possible prices for the products of his labour; and co-operative purchasing must provide the peasant with good quality products at the lowest possible prices.
In theory, it is not difficult to solve these organizational problems by using the techniques of the commercial apparatus; and it is logically possible to devise a number of methods and co-operative systems which are capable of organizing joint purchases and joint marketing. Practice shows, however, that co-operative forms evolve in an historical and not in a logical fashion. It often happens that the most subtly devised and profoundly thought out organiza­tional forms will collapse as soon as they make contact with real life.
Any co-operative system for joint marketing or purchasing will
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show its virtues when resting on the loyal support of those who have united within the co-operative; and when resting on a conscious co­operative discipline which does not permit peasant co-operators to buy or sell outside the co-operative apparatus. But we have to recognize that the Russian peasant masses are far from possessing such a clear awareness. The co-operative milieu is not very cultured; it is far from being aware of its own interests and is often dependent on the local traders. Nor is it receptive to co-operative propaganda. It buys through the co-operative, or entrusts the co-operative with the sale of the products of its labour only when, by so doing, it sees an immediate material advantage in comparison with a sale at a bazaar or a purchase in a shop.
Co-operatives, therefore, have to compete with commercial capital not only in the struggle for wholesale markets abroad, where they contend with the most powerful firms in the world; they also have to compete at the local level for the attention of their own members. Co-operatives can win this latter struggle only if - consistently and from the very start - they offer the peasantry conditions for buying and selling which are more advantageous than those offered by the private trader. They can achieve this only by perfecting the technical and organizational standards of the co-operative apparatus as an enterprise.
In theory, all forms of co-operative purchasing and marketing are economically sound and free from the risk of losses. But in practice this proposition holds good only if the co-operative apparatus which is in the process of being established is able, as a commercial enterprise, to stand on at least an equal footing with the very largest commercial enterprises in the same field; and if it can overcome all the difficulties in its work which we have just examined.
It is, at the same time, absolutely essential that a co-operative enterprise, which is capable of acquiring all the competitive power of commercial capitalism, should be developed so as to take full account of the special features of a co-operative association of hundreds of thousands of small peasant households; and that it should carefully follow the basic co-operative principle of the direct responsibility of the organs of management to these peasant masses.
The choice of co-operative forms is, of course, arrived at not as the result of logical analysis but as the result of life itself. And the choice is usually made at the cost of the ruin of numerous co­operative entities which were, in this respect, flawed.
A graphic and very instructive case in point is the history of the most classical type of purchasing co-operation, namely consumer co-operation. The epoch when it first originated is strewn with the corpses of undertakings which, although extremely attractive, were
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nevertheless weak from an entrepreneurial point of view. The co­operative idea was sound in itself. But it could not become a reality until - through the example of the society in Rochdale - it was able to find specific and viable methods for embodying the idea in an economic enterprise.
Attempts to organize joint purchases during this period usually originated in the form of a mass movement in the pursuit of an idea; and from the organizational point of view, these attempts were based on a very primitive and even naively conceived idea of joint purchasing. Their resources came from credit advanced by cus­tomers; the consignments of the commodity which had been acquired were distributed at cost price; and out of philanthropy, credit was widely made available, throughout the entire operation, to the poorest members.
The first stages of such an undertaking usually gave an impression of stupendous success: prices fell and all the consumers remained satisfied. However, a reaction very quickly set in. Local shopkeepers, irritated by the fall in prices, embarked on a life and death struggle, using all their capital for the purpose of trading below cost, thus undercutting the co-operative undertaking and depriving it of its customers.
These efforts nearly always succeeded and friction then arose among co-operative members. Members who had borowed money were unable to repay it. Unexpected losses, damage to goods and enormous overhead expenses came to light; and, at the first jolt on the market, the enterprise collapsed like a house of cards.
It was in this way that the initial English and other similar undertakings met their end. It was obvious that any direct application of the principle of joint purchasing would be totally unable to withstand the onslaught of life and that it was, from the entrepreneurial point of view, utterly unsuitable.
An obvious need was felt to find organizational forms of work of a kind which would, without abandoning the movement's ideological goals, nevertheless produce solid and organizationally stable forms of co-operative enterprise. In 1845 these forms were discovered in the enterprise of the 'Just Pioneers'. One has only to recall the basic principles of the Rochdale weavers in order to grasp their very profound importance and vitality, specifically from the entrepreneurial point of view.
Thus the basic Rochdale principle lays it down that commodities bought by a co-operative at low prices on the wholesale market must be distributed between the co-operative's members not at their commercial cost but at the customary average prices on the retail market. This principle is put forward to counter-balance the usual
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practice of rudimentary joint purchases, where a commodity is bought up wholesale out of money which has been collected and is then distributed to the buyers at the wholesale price with a surcharge for overhead expenses.
The Rochdale principle, which might seem to contradict the principles of joint purchasing, results in an enormous strengthening of the co-operative as an enterprise in the following ways:
1. The co-operative is thereby enabled, over the course of the year, to consolidate its usually meagre turnover capital.
2. It is enabled, out of its profits, to cover any expenditure on organization over and above what it had budgeted for; to cover any fortuitous financial or material losses; and to sell some goods below their purchase price.
3. It can make purchases on credit, although this is usually less profitable.
In other words, the possibility of earning a significant, even though short-term, profit within a co-operative apparatus makes it more stable and more flexible from the entrepreneurial point of view.
The second Rochdale principle envisages that all profits earned from this additional charge over and above the cost of the products should be repaid at the end of the year to those who invested in it, that is, in proportion to their annual contribution to the buying of the goods.
This principle restores the economic profitability of joint purchases, and indeed strengthens profitability by acting as a source of savings. Thanks to the delay in refunding these additional payments for a whole year, the ten- and twenty-kopeck pieces put aside every day are recorded day-by-day and combined into a single sum which ultimately grows into an amount of real importance in a worker's budget.
The annual payment of such a relatively large sum may attract the attention of the peasants and serve as the best kind of co-operative propaganda.
The third rule, which proclaims that it is not permissible for a co­operative to adulterate or give short weight for a product, stemmed from the principle of joint purchasing. Co-operatives, since they are interested in the absolute price of the product obtained and not in the difference between the purchase and resale prices, have to avoid adulteration and dilution, if only because the work involved in adulteration adds to the original cost of the product which is obtained and consumed by the peasant.
There is, however, no doubt that the practical adoption of this
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principle weakened the position of co-operatives as enterprises and deprived them of a number of economic opportunities.
The first of these lost opportunities had been that of trading on credit. The entrepreneurial calculation which leads a private shopkeeper to bestow extensive 'favours' on a buyer by allowing him to have goods on credit, rests on two foundations:
1. By selling on credit, private traders expand their turnovers, thereby reducing overhead costs and increasing the volume of profits; and
2. When a buyer becomes indebted to a private trader, he makes himself dependent on the trader and can easily become the victim of exploitation. Income derived from adulteration, from giving blatantly short weights, from charging higher prices and from the selling of shop-soiled goods will more than offset the unavoidable proportion of bad debts which always occur when trade is conducted on credit.
But the adoption of this Rochdale principle means that in the case of co-operatives, the latter consideration totally disappears; and a purchasers' co-operative, by forgoing price surcharges, deprives itself of the only available means of covering the inevitable losses which result from granting credit to impecunious buyers. Therefore, from an entrepreneurial point of view, it is precisely the co­operatives which consider the granting of credit to be impermissible. These were the reasons which led co-operators to adopt the fourth principle of the 'Just Pioneers', even though it meant an inevitable curtailment of their operations. This fourth principle laid it down that in a co-operative shop, transactions can be conducted only in cash.
This principle was also upheld on the grounds that if credit were widely made available to members, the co-operative's meagre capital ivould become inextricably tied up in loans; and the co-operative would have extremely little power on the wholesale purchasing market. Not having any liquid resources, it missed profitable trading opportunities and was obliged to rely on burdensome forms of credit provided by commercial capital.
Therefore, in those cases where social conditions prompted co­operative organizers to think about giving credit assistance to their poorest members, they tackled the problem by creating special credit funds; and they based their credit facilities entirely on these funds, so as to ensure that losses in no way affected the entrepreneurial foundations of joint purchasing.
We can therefore see that three out of the four basic principles of the Rochdale weavers are derived, not from the foundations of
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co-operative ideology,1 but from the entrepreneurial considerations of the co-operative organizer.
These same entrepreneurial considerations also gave rise to the fifth basic principle of purchasing co-operatives, which is expressed in its financial structure. So far, this has not crystallized sufficiently clearly to be defined in a succinct slogan.
In cases of rudimentary joint purchasing, the peasant household does not set aside any separate or special resources. Each peasant household advances the money which it would have to pay if it made the purchase itself. The money collected is pooled and used to buy commodities which are then handed over to the households which contributed to the purchase. However, this method of financing operates only when joint purchases are made at irregular intervals. In so far as joint purchasing becomes a regular operation, the regular collection of money and the organization of the purchasing itself will develop on a scale where it becomes profitable for peasant households to delegate joint purchasing operations to a special enterprise and provide this enterprise with its own resources.
There is no doubt that purchasing co-operatives will cope more efficiently with their tasks, if they function as an enterprise. But at the same time, the existence of these co-operatives in this form will require the peasants to make advance contributions to the turnover capital of this new co-operative enterprise over and above the enterprise's expenses which the peasants paid before. This expenditure could be very substantial.
If, let us suppose, a peasant makes purchases worth 300 roubles a year, and if the capital in the co-operative circulates ten times per year, then the peasant must make an advance contribution to the co­operative's capital of 30 roubles, because only in this case will the co­operative be able to provide him with its services.
This is a very substantial sum; and the peasant will be able to pay it in addition to his ordinary expenses, only when he feels sure thaf the saving from the joint purchase is substantially greater than the' amount of his share in the co-operative.
Therefore, the principle has been urged that the capital of a purchasing society must be financed out of the savings made by joint purchasing and must not be financed out of the pocket of the peasant. In other words, when a purchasing co-operative begins its work it must - through the collection of direct share contributions from its members - build up capital of a small amount which is not burdensome for those who pay. During its first years of trading, it must rely on credit from commercial firms. Then, having achieved a substantial saving as a result of the difference between the cost of procuring goods and the average market prices at which it is
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required to sell them in accordance with the first Rochdale principle, the co-operative must, in accordance with the second Rochdale principle, repay to the contributors only a part of this saving. The remainder of the proceeds must be used by the co-operative to build up its capital, which thus accumulates as its work proceeds.
Such are the basic principles of the Rochdale Consumer Co­operatives. According to these principles, the process of joint purchasing is developed as follows:
1. A special enterprise is created, on the basis of capital separate from the peasant household; and it organizes its own apparatus for purchasing and distribution.
2. The co-operative apparatus thus created uses its share capital and the credits which it has obtained to buy commodities of which it becomes the owner as a juridical person.
3. The commodities are distributed between the members; but this is done through a change of their legal ownership, by purchase and sale at average market prices and for cash.
4. The profit earned by the co-operative enterprise as a result of the difference between procurement value and the price when the distribution is made is partly invested in the enterprise's capital and partly repaid to the co-operative's members in proportion to what they have contributed.
5. The management of the enterprise is undertaken by elected collective organs and in accordance with the rules drawn up at meetings of the members, whose rights are determined by their membership and not by the amount of their shares in the co­operative's capital.
Such is the co-operative organization which evolved historically for the purpose of solving the problem of joint purchasing, and which, from this point of view, is very successfully tackling the organization of the peasant household's money economy.
In view of the abundance of literature on the organization of consumer societies, we have confined ourselves to the general considerations just set out; and we shall entirely omit any detailed description of the co-operative purchasing apparatus.
Co-operation for the purchase of the means of production for peasant households - such as seeds, machinery, fertilizers, and so on - is organizationally separate from consumer co-operation but forms part of the general agricultural co-operation which -we are examining. Its organizational foundations are identical to those explained above; and if they differ at all, they differ mainly in the sense that purchases are made at more irregular intervals. For this
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reason, advance contributions are more often collected from those taking part in a purchase. This similarity of organizational principles makes it unnecessary for us to provide any special description of purchasing co-operatives.
Far more basic and important is the distinction that separates purchasing co-operation from consumer co-operation, with regard to the purpose for which commodities are handed over to the peasant household.
Purchasing co-operatives, which supply the peasant with the means of production, impose upon the co-operative apparatus not only the task of conducting commercial operations, but the further task of making important judgements of an agronomical nature as to the qualities of the goods that they provide. A purchasing association, which supplies rural areas with seed, has to guarantee that they are capable of germinating and are economically suitable; and it naturally acquires the function of offering guidance as to what varieties of seed the peasants should sow in their fields.
In these conditions, part of the organization of production is shifted by the individual peasant household on to a collective enterprise. In order to perform this role, the organization of purchasing will acquire certain special characteristics. The link between purchasing co­operatives and peasant households will become closer than in the case of consumer co-operatives.
The same is true with regard to the choice of machinery and even the planning of new types of machinery. All this will give purchasing co-operatives the role, not so much of centres for supplying households with the mechanical means of production, but rather, the role of centres for collective thinking, which organize the means of production within the peasant household, both through the organiza­tion of joint purchasing and also through other methods of influencing the peasant household. It is, indeed, not without reason that purchasing co-operatives become surrounded by experimental sta­tions for seed and machinery, by laboratories and by other institutions engaged in working out methods for agricultural production.
These are the reasons that lead us for the most part to classify purchasing co-operatives as a form of producer co-operation. Some of the leaders of purchasing co-operatives have recently been inclined to regard them, not as co-operatives engaged in providing supplies, but as co-operatives which organize the means of production of peasant households - thus still further emphasizing their importance for production.
Even more closely linked with production is co-operative marketing which organizes another aspect of the peasant family farm's money economy.
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From a logical point of view, the problem of co-operative marketing can be solved as simply as that of joint purchasing. Peasants who want to sell the products of their labour at wholesale prices will assemble small amounts of the commodity which they produce - such as flax, eggs, milk or hemp - into sufficiently large commercial consignments and, by offering them on the wholesale market, they find advantageous buyers.
However, the numerous failures of co-operative undertakings in this field show us beyond doubt that the concrete realization of the simple idea of co-operative marketing proves to be an even more difficult task than that of joint purchasing.
In the first place, the peasant, oppressed by a constant shortage of money, will be very reluctant to wait for the co-operative to collect the necessary consignments, sort them through, sell them and then hand over the proceeds of sale to the peasant two or three months later. The need for money is generally so acute that peasant householders prefer to sell the flax straight away, even if at lower prices.
For this reason, it is hardly ever possible to conduct a simple joint marketing operation in a pure form. It is essential to pay something to the peasants long before the products collected from them have been sold, in order to satisfy their desperate need for money.
Marketing co-operatives cannot, however, follow the path of consumer co-operatives, by creating a co-operative enterprise which buys the peasants' products out of the capital built up through share contributions. This is impossible if only because, in view of the seasonal nature of sales, this capital has to be equal to the annual turnover or, what comes to the same thing, it must be equal to the peasants' annual receipts for the product which is jointly marketed.
It is clear that the payment of such substantial sums of money is beyond what the peasant household can afford; and co-operative marketing is usually organized in the form of a rudimentary operation for joint selling combined with a parallel operation for granting credit to peasant households on the security of the commodity which they have provided for the joint sale.
Under these conditions, the peasant's commodity, throughout the whole time when it is handled by the co-operative apparatus, remains the property of the peasant, which he has handed over to the co­operative on commission for the purpose of being sold.
To put it more simply, the peasant who has brought his products for marketing is given a certain sum of money, equal to part of the estimated value of the products which he has brought. But this money cannot be deemed to be a partial payment for the product. It is merely a loan secured by the value of the product to be marketed; and is distinct and separate from the marketing operation.
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The loans provided on the security of the commodity in question are usually equal to one half, two-thirds or three-quarters of its estimated value, but with the aim of ensuring that if prices fall, the fall in the value of the product does not make the security worth less than the loan. This sum of money is usually quite sufficient to sustain the household until the product is realized. Unfortunately, however, our co-operative members are still far from possessing the necessary co-operative awareness and staying power; and since they very often believe that a bird in the hand is worth two in the bush, they will take their product to the bazaar if the cattle-dealers in the bazaar pay more than the amount of the pre-payment, i.e. the initial loan offered by the co-operative.
In order to combat this kind of phenomenon, many co-operatives follow the wrong path: instead of developing their members' co­operative awareness, they begin to increase the size of loans in relation to the value of the secured goods. They offer loans equal not to three-quarters of the goods' estimated value, but equal to 80 per cent, 90 per cent, 95 per cent or even 100 per cent of their estimated value.
It is true that in theory, even with loans of this size, the lending is still not the same as a final purchase of the goods because, in the event of the goods being sold at a higher price, the peasant receives an additional payment, while in the event of a sale at a price below the value of the loan, the difference must be recovered from the peasant who took out the loan. This is provided by the co-operative's usual rules. But it is quite obvious that these theoretical considera­tions are only valid in relation to the supplementary payment; because it is hardly possible to count on recovering any sum of money already paid to the peasants without thereby undermining the co-operative undertaking itself.
Co-operative practitioners are themselves well aware of this; and in order to neutralize the effect of these virtually 'final' purchases they often resort to devices which have very little in common with the co-operative spirit. Thus in one popular book on co-operative marketing we read that:
Our flax cultivators, who do not understand the rules of co­operative marketing and who are accustomed to selling goods at the bazaar for a fixed price, will demand that co-operatives should also pay for the product in full. In such cases, some co­operatives, if their members prove stubborn, will adopt the following method: they pay their members for the flax in full, but at the same time they either undervalue the flax or assess it at half a grade below what it merits.
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High payments when goods are accepted remain a scourge for co­operative marketing. It has to be remembered that co-operative marketing means precisely the joint marketing of a product by its producers; in no sense does it amount to trade in the sense of 'buying for the purpose of subsequent resale'. This constitutes the whole strength of co-operation, because it operates not on the speculative difference between buying and selling prices but on the full value of the product, which means payment for the labour put into it; and therefore it cannot entail a net loss, no matter how much prices may fall. The transition to operations based on a final price exposes co-operatives to the risk of losses and undermines one of their most stable foundations.
We think it necessary to note, however, that a large number of practitioners of the co-operative movement point out the desirability of gradually creating adequate capital reserves and of building up marketing co-operation on the same model as that of consumer co­operation - that is, by paying the peasant a final price for the goods which the co-operative acquires from him, and distributing the co­operative's profits at the end of the year in proportion to the value of the goods handed over for marketing. This new principle, together with its theoretical justification, has recently been advocated with great fervour by A. Chizhikov. He points to the greater simplicity and convenience for the peasants of having their goods bought at market prices and being given receipts entitling them to possible further payments, in preference to the ritual of secured loans and commissions which are often pointless and irritating for the peasantry. We shall not dispute the substance of these arguments. They are undoubtedly valid for those co-operatives that have become established and have accumulated a reserve capital out of their profits. The whole question is whether the time is yet ripe for Soviet co-operatives to adopt such a system.
For there can be no doubt that the transition to operations of this kind will only be possible when confidence exists that the difference between buying and selling prices will at all times be at least enough to cover the cost of maintaining the co-operative. This - and indeed the very existence of marketing co-operatives in general - will be possible only if the co-operative apparatus has achieved a high technical and organizational standard; and this latter condition can be fulfilled only if co-operatives enter the market from the very start as powerful large-scale centralized organizations, whose management possesses virtually dictatorial powers.
It may be asked why we do not insist on such drastic organizational methods in the case of the other types of co-operative - such as consumer and credit co-operatives.
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