Friday, May 30, 2014

7 ALEXANDER CHAYANOV The Theory of Peasant Economy

family can harvest with its own resources will be 20/4.3, that is, 4.65 desyatinas. And since a desyatina requires a total of 21.4 workdays and gives a gross income of 29 rubles, 10 kopeks, excluding seed, our farm family will be able to work 94.8 days (47.4 working days per worker a year) and to increase its means of subsistence by 139.3 ru­bles. But by using a harvesting machine, the family can more than double the worked area, and by sowing, let us say, 10 desyatinas, it will be able to use about 200 working days a year and obtain 291.6 rubles gross income. Deducting 30 rubles from this for amortization and repairs, we have 261.6 rubles, i.e., over 100 rubles more than with manual work. Such a considerable increase in means of subsistence is a tremendous advantage to the labor farm even though, in book­keeping terms, to use a reaper on 10 desyatinas is surely unprofitable.
TABLE 4-45 Workdays Spent on One Desyatina of Wheat
Tillage   .................................. 3.6
Sowing and drilling in .................... 1.7
Weeding   ................................. 4.4
Harvesting ................................ 4.3
Carting ................................... 1-9
Threshing   ................................ 3.6
Winnowing  ............................... 1.9
Total ............................... 21.4
Thus, we see that the peculiar features of the labor farm, given abundant land, increase the opportunities to use machines. Such is the significance of the machine on the labor farm in resolving the periods of critical labor intensity; but the mechanization of labor has quite different characteristics in periods of weak labor intensity.
Thus, for example, the agricultural officer D. I. Kirsanov said at the 1900 Perm* meeting:
If there is an advantageous use for peasant family labor in wintertime, the agricultural officer will do a great service by spreading threshers and freeing a considerable part of peasant labor for other productive work. But if the peasant has nothing to do in wintertime except thresh his grain, the spread of the threshing machine can only be seen as unproductive expendi­ture of the peasant's already scanty capital.
Kirsanov very aptly points out a situation in which the labor farm's tasks clash with labor mechanization, despite the perhaps great ad­vantage, by bookkeeping standards, of machine work. Such in their most general outlines are the limits and significance of machine use in capitalist and labor farms.
The Organizational Plan of the Peasant Farm      191
It is exceedingly easy to make an estimate for buildings on any farm. Taking account of livestock numbers, the amount of equip­ment, and the produce obtained with large harvests, it is not hard to determine the area or even the volume of covered space required to maintain the means of production and the produce obtained on the farm.
According to our calculations made on materials from Starobel'sk uezd, 3.1 square sazhens of agricultural buildings are required per desyatina of arable, excluding the hut in which the farm family lives. This figure changes according to farm size; larger farms, which use their buildings more and build them higher, manage at a lower rate. Figures for Starobel'sk uezd are shown in Table 4-46. The cost per
TABLE 4-46
Square Sazhens of Sown Area Agricultural Buildings
(Desyatinas) per Desyatina of Field
0.01- 3.0 ................... 5.2
3.01- 7.50 .................. 4.4
7.51-15.00 .................. 2.7
> 15.00 .................. 2.5
desyatina of using buildings (amortization and repairs) in Voloko­lamsk uezd, for example, amounted to 4.32 rubles.
The chief feature in the organization of peasant farm buildings is that buildings, as the most lasting means of production, more often do not correspond to the general volume of activity, which changes as the family grows, as there are repartitions among family members, and so on. The building "overload" on young farms that have just become separately established and have received a shed or a barn designed for the much larger area of the father's farm is largely ex­plained by this.
By putting a value on buildings, livestock, and equipment and by summing these valuations, we obtain the size and composition of fixed capital for Russian peasant farms (Table 4-47).
Thus, the fixed capital of an average peasant family fluctuates be­tween 500 and 1,500 rubles, depending on the area. By comparing these figures with number of workers and area sown, we obtain the totals in Table 4-48.
TABLE 4-47 Value of Peasant Farm Means of Production
Buildings Livestock Equipment Total   
Starobel'sk uezd,   
Khar'kov guberniya ... ....    420.5 471.2 100.4 993.6   
Volokolamsk uezd,   
Moscow guberniya .... ....    909.0 268.0 189.0 1365.6   
Vologda uezd,   
Vologda guberniya ... ....    453.0 137.0 82.3 672.3   
Tot'ma uezd,   
Vologda guberniya ... ....    313.9 108.9 44.1 466.9   
Gzhatsk uezd,   
Smolensk guberniya ... ....   1123.6 212.7 83.2 1419.5   
Sychevka uezd,   
Smolensk guberniya  .. ....   1262.0 174.0 100.2 1536.2   
Porech'e uezd,   
Smolensk guberniya .. ....   1309.0 267.0 74.0 1650.6   
Dorogobuzh uezd,   
Smolensk guberniya .. ....    717.0 271.5 82.0 1070.6   
Voronezh guberniya .... ....    341.0 130.2 79.1 652.2   
Tambov guberniya   .... ....    550.5 316.5 98.1 965.1   
Chernigov  guberniya   .. ....    504.5 512.5 238.8 1255.8   
Novgorod guberniya   ... ....    489.0 173.3 82.0 500.3  
In order to move from general rates of available fixed capital to its circulation, and to compare its annual movement with the amount of circulating capital, we must make clear how much the peasant farm should spend on replacement of worn-out fixed capital and on its upkeep and repair. Budget works give these rates:
Percentage   i e., about
On buildings............     5- 6      50 rubles
Equipment ..............    18-25      30
Livestock, we assume, can renew itself.
We can judge the amount of circulating capital required according to the composition of expenditure on seed, fodder, rent, and so on. In Starobel'sk uezd, this amounts to 359.44 rubles for the average farm, and in Volokolamsk to 536.36 rubles. Then we may put forward the scheme in Table 4-49 for the process of capital circulation and renewal for the average peasant farm.
The 520 rubles annual net earnings of the family amounts to about 150 rubles per worker, or about 1.30 rubles per workday. Comparing the figures from our scheme with actual payment in agriculture in different areas, we have the figures in Table 4-50. The unexpected approximation of the Swiss peasant's labor payment to the Russian
The Organizational Plan of the Peasant Farm
TABLE 4-48
Total Value per
Sown       Worker
Starobel'sk uezd,
Khar'kov guberniya ... ..   103.4 278.1   
Volokolamsk uezd,   
Moscow guberniya .... ...   229.7 352.0   
Vologda uezd,   
Vologda guberniya .... ..   257.8 221.6   
Tot'ma uezd,   
Vologda guberniya .... ..   126.3 148.5   
Gzhatsk uezd,   
Smolensk guberniya ... ..   330.1 327.5   
Sychevka uezd,   
Smolensk guberniya ... ...   256.3 420.6   
Porech'e uezd,   
Smolensk guberniya ... ..   275.0 429.9   
Dorogobuzh uezd,   
Smolensk guberniya ... ..   237.8 278.2   
Voronezh guberniya ..... ..    68.2 164.5   
Tambov guberniya  ..... ..   148.3 243.8   
Chernigov guberniya ____ ..   153.2 452.5   
Novgorod guberniya ____ ...   148.4 198.9  
FIGURE 4-24 Value of Peasant Farm Means of Production
Initial Factors         Gross Income Distribution
Labor of Renewal of
3.5 workers fixed capital...........   80
Fixed capital, Renewal of
1,200 rubles 1,100 circulating capital..... 500
Circulating capital, Payment for
500 rubles family labor........... 520
data cannot confuse us and does not contradict the Swiss peasant family's higher standard of well-being. This is derived, not from a high payment per labor unit, but from the ability and skill to make more use of the working year in the sense of working more days, and mainly from capitalist profit on the hired labor employed on the majority of Swiss farms.
With these organizational considerations, we end this long-drawn-out chapter; we suppose they are enough to substantiate our some­what abstract theoretical conclusions and to select problems for further chapters.
TABLE 4-50
Starobel'sk uezd.......... 1.33
Volokolamsk uezd ....... 1.38
Gzhatsk uezd............ 1.37
Porech'e uezd ........... 1.23
Sychevka uezd  .......... 1.56
Dorogobuzh uezd ........ 1.47
Laur's Swiss budgets..... 1.52
TABLE 4-49
Capital on the Labor Farm
The basic rules we have shown for drawing up a peasant farm's organizational plan give us considerable material to judge how means of production are organized in the farms we have studied. We now know the technically necessary supply rates for various forms of means of production, the rates at which they wear out and are replaced, and the relationships between value of buildings, equipment, livestock, and so on. It must be acknowledged, however, that in establishing these relationships we have until now not gone beyond the limits of technical analysis. We have studied buildings, livestock, and agricul­tural machines simply as such. Even when speaking of their value, we were essentially speaking of their value as current equipment, and not of capital as an abstract sum of values in production circulation on the farm. Now that we know the technical work conditions and value of means of production, we can pass on to the most important problem in our study—how peasant farm capital is formed and re­newed as a sum of values that the family allocates from its personal consumption for productive ends.
The problem of capital on the labor farm is the most important in our whole study because in developing the theory of the peasant farm as a farm that fundamentally differs from the capitalist farm we can consider our task done only when we can undoubtedly establish that on the labor farm capital as such is subject to other circulation laws and plays a different part in its composition than it does in capitalist undertakings. Several statements that certainly indicate a role for capital on the labor farm somewhat different from that which it plays in capitalist undertakings have been established by the materials we dealt with in Chapters 3 and 4.
Thus, we know that economic activity and the quantity of labor used on the peasant farm are determined not so much by the amount of the proprietor's capital as by family size and the equilibrium achieved between its demand satisfaction and the drudgery of labor.
It is true that the availability of a particular amount of capital, by changing the conditions for labor use, greatly influences the achieve­ment of this equilibrium, but it does so as one of the conditions, indirectly, and not as the main factor.
We also know that the relationship of the elements of production —in particular, land and capital—on the peasant farm where there is relative shortage or abundance of land does not correspond to the capitalist optimal which would give the highest return on the capital invested in the undertaking. In attempting to increase its total annual income, the peasant farm often increases outlays of labor and capital per unit area far above the optimum rate which, in bookkeeping terms, gives a small percentage profit or none at all. Finally, we see that by increasing the farm's labor intensity the peasant family may, with the same capital, considerably raise the volume of activity and also its gross income, again at the cost of reducing payment per labor unit and the net bookkeeping profit.
These observations are, substantially, enough to answer the nega­tive part of our question and to recognize that capital does not always play the same part on the peasant as on the capitalist farm. It may be arranged to pursue other aims and originate in other forms. We will try to explain what these aims are and what are the particular forms of capital use.
First, we will try to pose the question as accurately as possible so that the answers will not be misinterpreted. To this end, we will go into the morphology of capital circulation on labor and capitalist un­dertakings, and will construct a schematic model of this circulation.
The scheme of capital circulation in a capitalist undertaking was established in K. Marx's well-known formula:
M-C-M + m
and may be graphically shown (Figure 5-1).
Editors' note.—Chayanov supplied no legend; the formula M — C — M1 comes from Vol. I of Marx's Capital, Part II, Ch. IV. M = Money, C = Commodities, and M1 = the original sum advanced, plus an increment.
Capital on the Lahor Farm      197
We see that the capital advanced is invested in elements of produc­tion (land, equipment, labor, and so on); when these have gone through their production cycle they are sold for money and give gross income. From gross income, first, the advanced capital is renewed; then, all that remains is the undertaking's net profit. The profit is the farm's target, and, therefore, the elements of production are compounded in a way that, at the particular price levels, is opti­mal and gives the greatest excess of gross income over capital ad­vanced.
In analyzing the nature of the labor farm, we can easily establish that its characteristics scheme of capital circulation will be somewhat
Editors' note.—Chayanov supplied no legend; the formula M — C — M1 comes from Vol. I of Marx's Capital, Part II, Ch. IV. M = Money, C = Com­modities, and Af1 = the original sum advanced, plus an increment.
different, since in addition to capital the family contributes its own labor in production. We see in the scheme that the labor and capital contributed by the peasant family combine the production factors (labor, land, equipment, and so on). As a result of the production process, these give gross income. From this gross income, part should be devoted to renewal of capital advanced to its former level in order to keep activity at the former volume, and part to expanded repro­duction if the family is expanding its economic activity. All the re­mainder is available to satisfy the usual family demands, or otherwise for reproduction of the work force.
Comparing both schemes, we see that for the capitalist entrepre­neur the sum of values that serves to renew the work force is, from his private economic viewpoint, indistinguishable from other parts of the capital advanced to the undertaking, and is determined by the objective national economic category of wages and number of work­ers required for the particular volume of activity. This, in its turn, is determined by the total size of the entrepreneur's capital.
However, on the labor farm, so far as it remains such, the sum of values that serves to renew the work force is the cultivating peasant's
personal budget. This budget is determined by family size and the extent to which their demands are satiated, and this depends on a whole series of effective conditions synthesized in the on-farm equi­librium, which, as we know, determines the total volume of the family's economic activity. Hence, it would seem that the amount of capital and, consequently, the amount annually allocated for capi­tal renewal should be composed according to the technical require­ments, depending on the volume of economic activity established by this equilibrium. At the same time, however, we know that the basic equilibrium itself, which determines the volume of family eco­nomic activity, largely depends on the availability of capital to labor-in other words, on the amount of capital advanced with the labor. We have at first sight a logical vicious circle.
In resolving it, we also come near to posing our central problem: What sort of link or, more accurately, interrelationships are there between the capital advanced or, similarly, annually renewed and the basic economic equilibrium between the drudgery of labor and fam­ily demands, which establishes the amount of annual earnings?
It would be naive to consider their link a one-sided dependence of one on the other. We have before us two interconnected groups of phenomena which form a single system by establishing an equilib­rium between the components of both groups. The task of this chap­ter is to disclose the mechanism for establishing this equilibrium. Yet, while in the past we have rather fully established how capital, according to its intensity, influences production and the basic eco­nomic equilibrium, now we will focus our attention mainly on the origin of this capital, on the factors that determine its amount, and on the processes of capital renewal and formation.
Putting it more simply, we ought to determine the conditions in which, while setting its economic equilibrium for the particular year, the peasant family will, at the same time, be able to completely renew the physical capital used on production. We should also determine the conditions in which it will be unable to do this, and how in set­ting its on-farm equilibrium it will be able to achieve expanded re­production of its physical capital. In other words, which factors de­termine, in each particular year, the division of the peasant family's gross income into expenditure on capital formation and renewal of the labor force, taking into account that the expenditures are not controlled by wage rates?
Let us first sum up the empirical material we have and the empir­ical conclusions to which elaboration of this material may lead. Since
Capital on the Labor Farm      199
Starobel'sk Uezd Novgorod Guberniya   

Per Farm (Rubles) Percentage Per Farm (Rubles) Percentage   
Rent for land ............ ....    30.92 5.7 3.84 1.6   
Erection and repair   
of buildings ..........., ....   21.97 4.1 5.25 2.0   
Acquision and repair   
of equipment ........., ....    26.39 4.9 10.86 4.3   
Purchases of land and   
livestock  .............. ....  111.79 20.6 7.25 3.0   
Wages of hired workers ... 5.43 1.0 5.81 2.3   
Taxes and payments ...... ....    12.54 2.3 11.89 4.8   
Maintenance of stock   
and poultry ............ ,...  135.46 43.4 134.10 53.3   
Seed ..................... ....    50.40 9.3 36.20 14.6   
Manure   ................. 0.00 0.0 13.70 5.5   
Miscellaneous   ..........., ....    47.34 8.7 21.80 8.6   
Total .............. ....  542.24 100.0 250.70 100.0  
Table 5-2 is a characteristic comparison of economic expenditure with expenditure on personal consumption. In it, we have added certain other material to the data from Starobel'sk uezd and Novgo­rod guberniya.
The variations in personal and economic expenditure observed be­tween areas are explained by differing forms of economic activity. In northern areas, crafts and trades play almost the most important part in peasant economic activity; therefore, the volume of agricul­tural activity, both absolutely and relative to personal budgets, will
study of capital circulation is the most important thing for us, espe­cially the processes of capital renewal and formation, we will turn our attention to them first, and will try to analyze, in the budget materials we have collected, the composition and movement of the "economic expenditures,,, as they are called, which reflect these processes.
By "economic expenditures'' we mean all expenditure in the cur­rent year, in money and kind, intended for production, not consump­tion. Quite consciously, we include in their total both expenditure connected with circulation (for seed, fodder, and so on) and expendi­ture on renewing and forming fixed capital (erection and repair of buildings, and even purchases of land), since both equally are capital advanced for production purposes. Table 5-1 acquaints us with the prewar composition of these expenditures for more or less typical farms in northern and southern European Russia.
Expenditure on Personal and Economic Demands
Personal Expenditure
Economic Needs
Budgets Per Farm
Novgorod.......... 375.11 250.70 625.81 40.0
Starobel'sk ......... 470.78 542.24 1013.02 53.5
Volokolamsk ....... 497.20 557.50 1054.70 52.8
Tot'ma ............ 201.50 176.30 377.80 46.8
Expenditure on Economic Needs
Per 100 Rubles on Personal Consumption Rubles
66.9 115.1 112.0
be much less than in the south. Moreover, the capital intensity of the particular system may introduce considerable modifications. By attentively studying budget materials from other areas, one might in all probability notice many other territorial variations.
Such is the general information on expenditure on personal and economic ends. Now, let us try to analyze their interrelationship. First, we will try to follow the changes in each one as income in­creases.
TABLE 5-3 Novgorod Budgets (rubles)
Economic Expenditure
Personal Per 100 Rubles    Fixed Capital
Budget per Consumer's Personal per
Consumer Budget        Per Consumer      Expenditure        Consumer
0.0- 49.0 ...... 44.5 27.0 60.8 58.3
50.0- 59.9 ...... 55.2 31.9 57.8 72.9
60.0- 69.9 ...... 64.7 40.2 64.7 114.8
70.0- 79.9 ...... 73.3 53.7 73.3 132.1
80.0- 89.9 ...... 84.5 49.3                    - 153.0
90.0- 99.9 ...... 95.6 79.2 82.8 242.4
100.0-109.9 ...... 105.9 85.0 80.3 257.0
110.0-119.9 ...... 113.9 81.6 71.7 227.3
120.0-129.9 ...... 126.0 88.9 70.5 335.0
130.0-oc  ........ 172.4 86.6 50.2 361.0
The Novgorod guberniya budget materials in Table 5-3, ranked by level of consumer's personal budget, give us a particularly clear picture of the relationship between income level and its distribution between personal and economic expenditure.
Let us trace the course of the figures we have analyzed in Figure 5-3.
Capital on the Lahor Farm      201
FIGURE 5-3 Economic Expenditure per Consumer and Personal Budget Novgorod Guberniya
50    60     70    80    90    100    110    120    130   140 PERSONAL BUDGET PER CONSUMER (RUBLES)
In following the curve, we see that as its well-being grows the Nov­gorod peasant farm increases its capital intensity more and more until it reaches a level of about 80 rubles economic expenditure per con­sumer. After this, the advances for capital formation increase no fur­ther, but fluctuate about this sum, and the proportion of economic expenditure falls.
This observation has recently been made by other economists (A. L. Vainshtein, G. A. Studenskii, and others) as well as by us; it permits us to suppose that in peasant farm organization there exists a certain limit to rational equipping of the work force with means of production. Any increase in capital available to the worker up to this limit obviously helps to raise labor productivity. At this limit, the maximum is reached and the available capital enables the work force to develop its full production potential. No further increase in the farm's capital intensity (unless accompanied by a change in technique, of course) can increase labor productivity and alter the basic equilib­rium of on-farm factors.
Such is the first empirical conclusion we can make from looking at the process of capital formation. By studying the table, however,
we can draw a further, more important conclusion. We see in the table and graph that economic expenditures, i.e., the amount spent from annual earnings on renewing capital, run parallel to the per­sonal budget. At the same time, while the farm's capital intensity has not yet reached its optimum, the growth rate for capital renewal in most cases exceeds that for personal budgets.
Noting this link, we may suppose that determining expenditures on capital renewal is inseparably linked with that of personal budgets. One way or another, these expenditures are included in our system of the basic economic equilibrium between drudgery of labor and the farm family's demand satisfaction.
We see that at a low level of personal budget the process of capital formation, or even only of capital renewal, cannot take place to any considerable extent. So far are elementary needs from being satisfied that there can be no thought of limiting consumption and devoting any considerable amount to capital formation. Only gradually, as labor productivity increases and the personal budget can be expanded to meet the chief family needs one after another, is the head of the farm able to direct an ever-increasing part of income to capital re­newal and formation. In other words, we can say that on the family farm advances to renew and to form capital carried out from the same budget are linked to the process of satisfying personal demands, and in every case their amount depends on the degree to which these demands are satisfied.
The last formulation is, of course, an oversimplified scheme neces­sary to underline our thought; but, as we will see below, deeper anal­ysis indicates that it is in a certain sense quite correct.
As long ago as 1913, we were able to observe that the farm's capital intensity depended on family well-being. At that time, while working on budget materials from peasant farms of Starobel'sk uezd, Khar'kov guberniya, we unexpectedly came on a certain connection between capital and the factors comprising the personal budget of the farm family, which is shown in Table 5-4. This table has undoubtedly stressed the peculiarity we have noted in the composition of the labor farm's capital.
Strict critics who look at the statistical series we have compared and recognize the connection between family's personal budget and economic expenditure as established may entirely reject our concep­tion of this connection. They may simply suppose that in renewing itself the capital circulating on the peasant farm automatically gives for each unit a corresponding level of family well-being, and that
Capital on the Labor Farm      203 TABLE 5-4
Number of Cows and Horses per Consumer by Arable and Personal Budget
Personal Budget   
Arable 0-70.0 70.1-90.0 90.1-00 Average   
Per Consumer Cows   
0-2.0 ........ .  0.11 0.17 0.13 0.14   
2.1-3.0 ........ .  0.20 0.26 0.44 0.30   
3.I-00......... .  0.11 0.30 0.26 0.22   
Average . .  0.14 0.24 0.28 -  
0-2.0 .........  0.14           Ö17 Ö2r3 ÖÄ9
2.1-3.0 .........  0.26           0.20 0.22 0.22
3.1-oc.......... 0.11           0.20 0.29 0.30
Average ..  0.17            0.19 0.24 -
there is no on-farm equilibrium concerned at all. Despite the naivete of this sort of remark, it has very frequently been made to us. Essen­tially, we can answer with a simple question. If the personal budget is subordinate, why does the farm family, having received a certain gross income as a result of the year's work, not try to take the process of capital formation to the optimum that would insure it the highest income? Why is it sometimes obliged to limit itself to merely renew­ing clearly insufficient capital, and sometimes forced to restrict even the process of renewal? Once the extent to which demands are met is a derived figure, what then insures that the money in the personal budget is not allocated to expand renewed capital?
To us, the answer to this question is clear. If the year's income level depended more on the capital advanced during the year, then its dis­tribution, and primarily its distribution between personal and eco­nomic demands, would, in turn, depend on the present and intended basic equilibrium of on-farm factors.
Not a single element in the family farm is free; they all interact and determine one another's size. No other explanation can be given for that fading and recovery in capital formation which we clearly see in the countryside during favorable and unfavorable harvest and market situations.
Undoubtedly, however, as we make our analysis more precise and clearly establish the direction of the connection we should do it so that the results may not be interpreted ambiguously. First, once we assert that capital formation depends on the on-farm equilibrium we ought to show how it depends on the mechanism of this equilibrium.
For example, since capital formation is affected by the general equi­librium of on-farm factors, conditions influencing this equilibrium cannot but affect the factors. As we know, one such factor is the nu­merical relationship of family consumers to workers. Let us see how capital formation reacts to this factor. To do this, we divide family farms into two subgroups; the first has a lower-than-average con­sumer-worker ratio, and the second has a higher-than-average one. In Table 5-5, we reckon the totals by half-groups. For almost all
TABLE 5-5 Novgorod Guberniya
Expenditure on Economic   
Requirements per Consumer   
Personal Consumer- -Worker Ratio   
Expenditure Less Than Above   
per Consumer Average Average   
0.0- 49.9..... 28.5 25.1   
50.0- 59.9 ..... 35.5 27.8   
60.0- 69.9 ..... 42.5 37.4   
70.0- 79.9 ..... 59.4 48.7   
80.0- 89.9 ..... .    (48.0) 50.6   
90.0- 99.9 ..... 84.6 74.3   
100.0-119.9..... (64.0) 98.2   
120.0-00  ....... 89.7 86.7  
groups, the consumption significance of a ruble of income grows as the family is increasingly burdened with consumers and the farm can advance a relatively smaller amount of capital.
It is necessary to note that other budget materials do not show such a clear reaction as the Novgorod ones, nor do they as regards the in­fluence of the consumer-worker ratio on the consumer's budget. In 1912, I noted this in essays on the theory of the labor farm, and the late V. K. Dmitriev paid particular attention to it. On the other hand, economic expenditure per worker will always give us a sharply ex­pressed series (Table 5-6).
Other studies give a reaction of similar type, as may be seen from Table 5-7. These series leave us in no doubt that advances for the
TABLE 5-6 Novgorod Guberniya
Consumer-Worker      Economic Expenditure Ratio per Worker
1.0 -1.25 ...............   59.61
1.26-1.50 ...............   73.85
1.51-oc.................   82.55
Capital on the Labor Farm      205 TABLE 5-7
Consumer-Worker Ratio and Capital Renewal
Consumer-Worker Ratio
1.01-1.15  1.16-1.30   1.31-1.45   1.46-1.60   1.61-oc Economic Expenditure per Worker
Khar'kov guberniya ....... 110.6 207.9 286.5 318.6 348.0
Tambov guberniya ....... 93.1 155.4 165.0 136.3 215.3
Smolensk guberniya ...... 148.9 154.4 197.4 194.5 237.0
Vologda uezd ............ 56.1         59.2 91.5 81.5 104.0
reproduction of physical capital are subject to pressure from family composition, and it is clear that in this case there cannot be any re­verse influence by capital advanced on family composition. The de­pendence of capital formation on the on-farm equilibrium is clearer in this example than anywhere else.
However, despite the entirely convincing nature of these compari­sons it was of considerable interest to us to compare groups in which the direct influence of personal budget on economic expenditure would be stressed, while at the same time the reverse influence of agricultural income on personal expenditure would be excluded. Such a comparison was essential for us to finally dispense with the supposition we have noted: the personal budget crudely and directly depends on volume of economic activity determined by available means of production. This view is, unfortunately, quite widespread in some circles.
We found such a comparison for the Novgorod farms, with their considerable activity in crafts and trades, by constructing a combined table showing agricultural income per consumer and personal budget. These did not correspond in Novgorod because of receipts from crafts and trades. This comparison gave the result in Table 5-8.
The table very clearly shows that at the same level of agricultural income the amount of capital advanced for production purposes
Table 5-8
Expenditure on Economic Requirements by Personal Budget and Agricultural Income (Novgorod Budgets)
Agricultural Income per Consumer
0-69.9 70-99.9        lOO-oo rubles
Economic Expenditure per Consumer
High .......... 27.1 41.2 60.8
Average........ 31.8 47.4 77.2
Low ........... 43.6 53.5 94.5
Farms by Consumer's Personal Budget
changes very greatly, depending on personal budget. Since personal budget differences at the same level of agricultural income might be solely due to greater or smaller receipts from crafts and trades, we have directly classified farms according to their amount of craft and trade activity. Table 5-9, which is very characteristic, resulted.
Farm's Crafts and Trades Activity, Agricultural Income, and Economic Expenditure (Novgorod Budgets)   (Rubles per Consumer)
Agricultural Income
Economic Expenditure
Farms with Little Crafts and Trades Activity
Farms with Much Crafts and Trades Activity
Fixed Capital
Farms with Little Crafts and Trades Activity
Farms with Much Crafts and Trades Activity
30.0- 39.9 ...... 25.8 20.7                   30.5 42.9
40.0- 49.9 ...... 20.6 30.9                   59.3 74.7
50.0- 59.9 ...... 27.6 34.1 112.4 94.3
60.0- 69.9 ...... 40.0 42.6                    84.1 130.2
70.0- 79.9 ...... 41.0 40.3 107.2 148.8
80.0- 89.9 ...... 43.8 48.3 114.2 195.3
90.0- 99.9 ...... 55.6 56.4 183.8 182.1
100.0-109.9 ...... 53.1 63.5 111.7 173.7
110.0-129.9 ...... 47.8 78.3 116.8 355.9
130.0-139.9 ...... 81.7 84.6 195.0 235.0
140.0-oo  ........ 104.2 100.7 380.5 311.5
As the table shows, in eight out of the eleven categories crafts and trades activity led to an increase in economic expenditure per con­sumer. This conclusion, at first sight paradoxical, is explained by the fact that in this classification such activity means a higher personal budget rate, which leads to an inevitable increase in capital advanced.
Because these empirical conclusions show that capital formation and renewal undoubtedly depend on the basic equilibrium of the family undertaking's on-farm factors, we are obliged to provide a theoretical justification. As we will see below, a very simple range of considerations will be enough to incorporate the capital renewal process into the system of equilibrium between drudgery of labor and demand satisfaction we have several times analyzed.
The problem we wish to analyze may be divided into two inde­pendent questions: (1) What influence does farm capital and varying capital intensity have on achieving the equilibrium on the family farm? (2) What influence does the basic equilibrium of on-farm fac­tors in the family farm have on advancing means (capital) to the farm's production cycle? We will first deal with question 1.
Capital on the Labor Farm
Let us take the usual graph we use for our analysis of this equilib­rium. It is determined by the intersection of the curve for increasing drudgery of labor, AB, and the demand satisfaction curve, CD. To explain how the farm's capital intensity is connected with the equilib­rium, we should explain how the presence and varying intensity of capital formation influences each of these curves separately.
Any increase in capital intensity or, what is the same thing, in availability to the family of means of production—if it is rational, of course—increases the family labor force's productivity. Moreover, this increase can be of two types. (1) Increased farm capital may raise the productivity of all labor expenditure on the farm. In terms of our graph, this will mean that thanks to increased capital intensity the family will obtain each unit of farm gross income with less than pre­vious labor intensity. In the graph, this means a downward shift in the curve AB, as shown in Figure 5-4, where AxBx corresponds to the increased capital intensity. (2) Without leading to a general rise in labor productivity, increased farm capital can have a positive effect on a particular farm sector. In this case, obviously, the farm will ob­tain the greater part of its gross income with the same degree of drudgery as formerly, and only part of the annual income will be obtained with reduced labor intensity. In the graph, this will mean that for a considerable length the curve AB will run as before, and only at a certain moment, corresponding to the introduction of the new capital, will it be shifted downward, as shown in Figure 5-5.
Thus, a rational increase in farm capital intensity causes the curve
O x
of increasing drudgery of labor to be shifted downward for the whole or part of its length.
However, observing the increase in gross labor productivity is not enough to judge the effect of varying capital intensity in achieving on-farm equilibrium. We must find the effect of increased capital intensity on the demand satisfaction curve (CD).
Any capital advanced means directing resources available to the cultivating peasant into production instead of into personal con­sumption, i.e., the reduction of consumption. Even if—and for sim-
Capital on the Labor Farm      209
plicity in our analysis we accept this hypothesis—the capital advance is made with loan capital, paying off the debt at the end of the year means a deduction from gross income for nonconsumption ends. Therefore, any increase in farm capital intensity means that a smaller part of each unit of gross income will be directed to satisfy personal demands. In other words, with increasing capital intensity each unit of gross income will give less demand satisfaction. In the graph, this leads to an upward shift of the curve CD as shown in Figure 5-6. This will give us a series of new curves, C^D^ C2D2, C3D3, and c4d4.
If we now compare the old curves AB and CD, prior to spending the new material values on production, with the new curves AxBx and C1D1, we naturally see that this leads to a new point of equilibrium (xx) (Figure 5-7). It is clear that the application of capital which we have analyzed will be acceptable to our farm only when the new equilibrium is established (1) with less drudgery of marginal labor
O K K<|
expenditure, (2) with greater demand satisfaction. In Figure 5-8, this condition is fulfilled. Conversely, the new capital expenditure will not be advantageous from the labor farm's point of view as soon as, despite the increased net income, it leads to (1) increased drudgery of marginal labor expenditure, (2) a reduction in demand satisfaction.
Figures 5-8 and 5-9 show the advantageous and disadvantageous application of the same capital sum. In the second application, the growth in labor productivity was so insignificant that it could not cover the large deduction from the farm's income.
FIGURE 5-8 Advantageous
K K<i
FIGURE 5-9 Disadvantageous
Such is the part played by capital renewal in the general system of establishing the labor farm's basic economic equilibrium. But since not a single peasant farm exists without some capital expenditure, the graphs we gave in Chapter 2 are simplified ones. They start from the proposition that the family's economic expenditure is zero, and to avoid misunderstandings we consider it necessary to qualify this now.
Capital on the Labor Farm
To show as clearly as possible how much capital renewal on labor farms differs from that on the capitalist farm, we will analyze two examples long known in agricultural literature but not yet theoreti­cally treated.
A. F. Fortunatov and other authors have often quoted the report on the work of agricultural bodies in popularizing machines, which D. G. Kirsanov, a Perm' agricultural officer, presented at the Perm' Agricultural Congress. Kirsanov notes the great difficulties in pop­ularizing threshing machines in areas where there are no crafts and trades in winter and, apart from threshing, nothing else with which the population can occupy itself. It is true that the introduction of the threshing machine eases the work and frees many hands, says Kirsanov; but since these hands can find no other work to do, this does not increase peasant family income by a kopek. The cost of the thresher, though, is a considerable deduction from the meager peas­ant budget.
By using our graphical analysis method, we can construct the effect of Kirsanov's thresher, starting from the proposition that it has no effect on reducing the drudgery of marginal labor expenditure, but reduces that of certain expenditures of average drudgery which do not affect the equilibrium of the economic factors. Then, acquiring a threshing machine gives us the effect shown by AB and CD in Figure 5-10.
The threshing machine shifts curve AMXB to AM2B, but this change has no further influence on the curve AB. The change in CD
9   °i
K ^
to CiZ>i gives a new equilibrium position, aggravating the drudgery of labor and reducing the farm family's demand satisfaction.
The second example is still more interesting. It comes from our observations in the Southeast, where small farms on the Don and Kuban often use harvesting machines on areas where they cannot be made to pay for themselves. The cause of this is that the ripe grain remains in the ear only four or five days, and without the machine the family could harvest only a much smaller field area than it could sow and cultivate. Since harvesting, like Kirsanov's thresher, is not in a marginal situation as regards drudgery of labor, the reduction of labor payment due to the machine's being unprofitable is recouped by an increased volume of activity. This results in a more favorable position of the equilibrium, as is seen in Figure 5-11.
\ \1 ■             co B1   
^ I
I I  
The sharp turns in curves AB and A^B^ result because apart from spring-sown grains all other agricultural activities give a much smaller labor payment. Therefore, acquiring a harvesting machine and slightly reducing labor payment for wheat harvesting permits this work, much more advantageous than the rest but formerly con­strained by the critical harvest period, to be expanded.
Quite enough has been said to understand the machanism that de­termines the advantages or disadvantages of a particular use of capital on the labor farm. It is self-evident that given the possibility—which, it is true, is hardly ever encountered—of using unlimited credit free of interest, the peasant family will increase its capital to a stage where
Capital on the Lahor Farm      213
all its work force is optimally equipped with means of production. This will correspond economically and technically to family composi­tion, and will give maximum annual labor payment with minimum intensity.
In order to have a clearer conception of how this optimal farm capital intensity is established, we will again make use of our graphic method and see how equilibriums are established with varying farm capital intensities. Let us take the economic work of a family without any capital. In Figure 5-12, this is represented by the AB curve of drudgery of labor. CD shows demand satisfaction and four possible degrees of capital intensity for the farm as a whole (I is C1D1 and AxBlf II is C2D2 and A2B2, III is CSD3 and ASBS, IV is C4D4 and A4B4). We see in Figure 5-12 that by increasing the farm's capital intensity from zero to the first degree and from the first to the second we raise the farm's well-being, since the effect of intensity, in the sense of a
reduction of the drudgery of labor, exceeds the cost of the expendi­ture. However, this third degree is the optimum, since with further intensification deductions from personal budget to be spent on in­tensification become so perceptible that they cannot be compensated by a continuing reduction in the drudgery of labor.
In any event, the peasant farm's capital intensity will always tend toward an optimum corresponding to the objective situation. And however speedily this optimum is achieved, any further increase in capital intensity will be disadvantageous to the farm family. Its free resources will either go to increase the personal budget or be put aside as savings and become, not a labor farm, but a capitalist cate­gory.
Such are the conditions of capital formation and renewal, given credits subject to interest or not. Some of our critics have argued against the need to make use of the labor-consumer hypothesis in interpreting family farm phenomena. They have pointed out to us that in this particular case whether a specific capital expenditure can or cannot be made may be expressed very simply and objectively. "If
The graph we have analyzed is constructed on the assumption that there is no return to credit. If the credit granted our farm becomes subject to interest, the scheme for determining the optimum remains basically the same; CiZ>i will merely shift to C2D2, and so on. They will all shift upward, since it will be necessary to deduct from income not only the renewal of capital already advanced but also the interest on it. In this case, many applications of capital can become disad­vantageous, as can be seen from the example shown in Figure 5-13. Therefore, any return on the use of capital will also lower the farm's optimal capital intensity. The higher the interest rates the farm has to pay on loans, the further it will reduce it.
Capital on the Labor Farm      215
the use of capital gives an increase in net annual earnings per peasant family worker, the expenditure will be considered advantageous and, if resources are available, will be made."
In reply, we have every ground for saying that it is just this pseudo-objectively posed question which the peasant cannot answer without subjectively balancing those on-farm equilibrium factors which so irritate our critics. We will try to explain what has been said with two examples, making a comparison with the possible behavior of a capitalist farm. Let us suppose that in the area where the farm is situated there is a large rentable area very suitable for exploitation. The capitalist farm that has resources will exploit this area as much as possible, until either it comes up against technical difficulties, or the expansion of the rented area becomes objectively disadvantageous because of distance and growing transport costs.
Obviously, the labor farm, despite the objective advantage of rent­ing 50 or 100 desyatinas, will limit the area rented to a few desyatinas —to the quantity that will square the labor-consumer balance. For each desyatina, without losing its objective advantage, subjectively means an increase in the drudgery of labor due simply to the increase in the annual amount. I venture to assure my critics that it is impos­sible to establish by any objective estimates or factors the point to which possible renting will take place and to which capital for rent and running the farm will be carried.
In exactly the same way, when stalling cattle the number of cows and, consequently, the amount of capital spent on them and on the means of production serving them will be established on the capitalist farm by the objective disadvantage of further expanding the herd. On the family farm, the amount will be set by the number of cows, where looking after the last one involves no more drudgery than not satisfying those demands that the income from this "marginal" cow might meet.
The only time an objective estimate might give some result is when some means of production are replaced by others, improved and more expensive and, consequently, requiring increased farm capital inten­sity. However, even in this case the new use of capital will be inevi­tably reflected in the general balance and will be able to expand or contract the volume of the family's farm work in sectors other than those to which capital is directed. As we saw in the examples of the Perm' thresher and the Kuban' reaper, frequently the basic equilib­rium becomes complicated, as also does the question of advantage, applicability, and partial expenditure of capital on farm improve­
merit. The moment of equilibrium, however, is decisive for determin­ing the total absolute amount of capital, depending in general on the volume of activity.
Our analysis completely answers the first of the questions we posed on the influence of capital intensity in establishing the on-farm equi­librium. It has shown us the theoretical meaning of the optimal equipping of the farm family with capital, which we had empirically established.
Now we can pass to the second question we posed—how the state of the on-farm equilibrium influences capital formation and renewal. As we see from empirical analysis, farms are not always able to carry capital formation to a level that would guarantee them an optimal degree of capital intensity, have to work with their labor insufficiently supplied with means of production, and must square the on-farm equilibrium at a reduced level of well-being.
Moreover, empirical materials indicate, as we know, that the aver­age peasant family on its farm is able to increase capital formation only in parallel with an increase in the personal budget, i.e., only if, due to some cause or other (a more favorable market situation or advantageous earnings from crafts and trades), the farm gross income increases.
Let us try to enter into the theoretical motives for such economic conduct. The peasant family as a result of its year's work receives, let us say, 1,000 rubles gross income in kind and money. What part of this will be directed to consumption needs and what will go on economic expenditure? This is one of the most complex problems in peasant farm organization. Every ruble of this thousand may be in­tended both for consumption and for the economy. It is quite clear that in order to exist the family should spend a considerable part of this income on its consumer needs. As needs are satisfied, the con­sumer evaluation of each ruble to be spent will fall, but however small it is, in all probability in any year the peasant family would be able to find a consumption purpose for all its annual income.
An obstacle to this is the insistent need, for the sake of the farm's future existence, to advance part of gross income to renew circulating capital and the exhausted part of fixed capital. Every farm family understands precisely what these economic expenditures mean. From its many years of experience, the family knows that to reduce its eco­nomic resources will mean a greater intensity of labor effort in the following year and, despite this, will result in a reduced level of well-being. In just the same way, it clearly understands that its future posi­
Capital on the Labor Farm      217
tion may improve if capital formation is increased. In other words, the production purpose of every ruble can be evaluated from the viewpoint of the level of well-being in a future year, which is sup­posed to be linked to a particular amount of capital renewal in the current year. Based on our earlier analysis, we can also graphically express this form of evaluating rubles directed to productive pur­poses. *
To show the effect on the on-farm equilibrium of varying amounts of loan capital advanced, which was returnable after use, we put in Figure 5-12 the demand satisfaction established by the on-farm equi­librium corresponding to each unit of capital advanced. If we now mark off the total amount of capital to be advanced against the sub­jective evaluation of that demand satisfaction which corresponds to each amount advanced, we obtain a curve of the subjective evaluation of rubles successively directed to capital accumulation from the point of view of their future consumption effect (KM in Figure 5-14). By this, we find a measure to evaluate the production purpose of rubles comparable with that usual for evaluating their consumption purpose (CD).
0 K 100
Let us compare both curves in order to divide the gross income of 1,000 rubles which we have taken; the function of the consumption value of successive expenditures will run from right to left (CD). Then, we have the following system of curves which intersect at x, corresponding to 600 rubles on personal consumption and 400 on
economic purposes. By comparing both curves we can trace peasant family psychology as it decides the basic question of its economic conduct: at what level should it call a halt to consumption in order to assure a sufficient level of well-being in future years?
If the family wishes to fix its well-being in future years at the same level at which it halts its consumption in the particular year—this should be taken as usual—obviously, it has to allocate to economic needs an amount which corresponds to the point of intersection or, similarly, to the equilibrium. In our graph, this takes place at an economic expenditure of 400 rubles. With any smaller expenditure, it is clear that the family, having improved its consumption in the current year, will in the next year strike an economic balance with much more drudgery and less demand satisfaction, as is clear from the curves for any sum less than 400 rubles.
If, however, the family wishes to raise its well-being in future years above the level at which it can stabilize itself from this year, it must undertake a certain reduction of its well-being in this year, and at this price, having increased the amount of capital available to its labor, provide for increasing its well-being in the future. We do not have empirical material with which to judge capital accumulation over a number of years on the same farm, and we therefore refrain from making any deeper analysis. It will be more prudent to accept-though this does not always correspond with everyday reality—that available income is divided according to the equilibrium of produc­tion and consumption evaluations or, more accurately, a desire to maintain a constant level of well-being. Accepting this conventional proposition, we will easily be able to theoretically explain the phe­nomenon we have observed of the growth of capital formation as gross incomes rise and its parallelism with increases in personal budget.
In fact, our analysis of the mechanism for dividing gross income between economic and consumption purposes was adapted in the graph to a gross income of 1,000 rubles. With a smaller sum—for example, 700 rubles—the course of the curves naturally changes some­what. The curve DC, showing consumption evaluations, does not start at 1,000 but at 700 rubles and will take a higher course relative to the production evaluation curve, and equilibrium will be reached with a much smaller allocation to consumption needs, as is seen from Figure 5-15. The two graphs show us how, by making graphs of evaluations for consumption purposes (DC) separately for each amount of gross income, we can divide gross income between con­
Capital on the Labor Farm      219
Demand satiation for different budgets with expected equilibrium points given different amounts going to form capital
0 20 40 60 80 100
sumption and economic expenditure for any amount, and express it graphically.
Such is the mechanism for splitting off capital formation from the food consumption of gross income. Our theoretical analysis discloses it only in its most general features, but the results obtained are enough to show how the process differs considerably from the usual type of capitalist circulation of capital according to the formula, M-C-M + m.
Here, in the Russian edition of my study, I must make a certain digression and focus the reader's attention on some consideration of what has just been said. I have expressed the whole theoretical anal­ysis of the basis on which capital renewal and accumulation takes place in the family farm as an equilibrium between subjective evalu­ations of different on-farm phenomena. I have used demand satisfac­tion, marginal expenditure of work force, equilibrium graphs, and displacement of curves showing data in conventional terms, not sub­ject to precise measurement. These and other concepts and methods are so unusual that by making use of them in expounding my theory I run the great risk of not finding a common language with the Rus­
sian reader. When I had written out a fair copy of my study and read it through, I even thought, at one time, of entirely omitting this com­plex and difficult part. I tried to deal with it without making use of complex curves and conventional figures. These attempts, however, did not succeed, since the fundamental subject of my analysis—the family farm's labor-consumer balance—cannot be expressed in any objectively final figures. To dispense with analyzing the relationship of this balance with capital formation was completely impossible, since without it the whole theoretical content of Chapter 2 would be not only incomplete but even quite incorrect.
Therefore, after basic reorganization, I decided not to exclude the theoretical sections of the German edition from the Russian one, especially since they merely develop and refine what analytical method there was in Chapter 2. I merely considered it necessary to justify my arguments.
Due to the use of similar terms, many readers who skim through my theoretical formulas might include me in the Austrian school and thus pay less attention to this study. I have already protested about this in the introduction, but consider it appropriate to dwell on this question once more. The marginal utility school, whose many services to economics I do not deny, attempted to derive from sub­jective evaluations of the utility of objects an entire system of the national economy. This was its main error.
I do not do this. My whole analysis up to the present has been one of on-farm processes. I have striven to make clear to myself how from a private economic viewpoint the family farm's producing machine is organized, how it reacts to the particular effect of general economic factors pressing on it, how its volume is determined, and how capital formation takes place on it. It seems to me I have succeeded in show­ing that in its economic behavior the family farm, lacking the cate­gory of wages, differs from the economic unit based on hired labor both in making its estimates and in labor motivation, and that capital circulation takes place on it in a somewhat different fashion from that on the usual capitalist unit, which has been analyzed with such bril­liance in Volume II of Capital.
Since without wages I could not give an objective estimate in value terms of on-farm phenomena as regards determining net profit as the difference between gross income and expenses, I had to introduce the hypothesis of the labor-consumer balance as a model which re­places the labor family's economic consciousness, or rather that of its head. I succeeded in showing that with the help of such an artificial
Capital on the Labor Farm      221
machine the peasant farm can determine the volume of its economic work and react to all general economic factors, to price fluctuations, improvements in production techniques, to increased fertility, and to other factors generating rent in the economic sense. Finally, it can in a regular fashion carry out capital renewal and accumulation and circulate loan capital internally. In brief, it can exist in the present-day commodity structure of the economy as a whole.
We saw that the economic behavior of a machine thus constructed was in many cases identical with that of mechanisms based on hired labor, but in some cases—predominantly in instances of agrarian overpopulation—they differed sharply. In our view, the value of our constructs lies in the possibility they give for understanding these differences in economic behavior. Therefore, Professor Karl Diehl, of Freiburg, was quite right when, in reviewing the German edition of my book, he wrote that neglecting these distinguishing features of the family farm and extrapolating the economics of Smith and Ri­cardo onto it led the British to make a number of bad mistakes in their Indian economic policy.
Now, since we have theoretically constructed the family farm's economic machine, we must introduce it into the system of the pres­ent-day national economy, dominated by capitalist relations. We must explain to what extent various factors in this system will have an effect on our machine, and to what extent mass processes taking place in the farm sector—the elements of which are constructed like our machine—will themselves affect the existing system of the national economy. In both cases, of course, the connection between the family farm's machine and the national economy will be maintained, not by subjective evaluations, but by completely objective figures in value terms. These are obtained as a result of the family production we have analyzed, or they serve as its preconditions. In other words, any sort of subjective evaluation and equilibrium, which we have analyzed as such, does not appear from the depths of the family farm and show itself on the surface. Externally, it will be represented by the same objective figures as any other.
The peasant farm may refrain from buying an object it has sub­jectively valued at less than the market price, but if it does buy it will pay the same rubles for it as would a neighboring purely capital­ist undertaking. However, as we will try to show in subsequent chap­ters, the family farm, due to the peculiar internal structure of its economic machine, has a number of objective features in respect of the national economy, both within the family farm sector and as it

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