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The Unfinished Narodnik Agenda:

Chayanov, Marxism and Marginalism

Revisited

S.S. SIVAKUMAR

This article reviews some of the salient aspects of the

controversy over capitalism and the fate of Russian peasantry,

among the Russian Marxists and the narodniks immediately

prior to and after the Bolshevik revolution. At issue was the

characterization of peasant economies. The narodniks

believed that neither marginalism nor Marxism fully captured

the nuances of peasant agriculture and the economicsystem/systems that evolved out of it; neither the market

model nor class analysis adequately described the allocative

and distributive processes in such economies. While

nineteenth-century narodniks stressed the role of institutions

based in the village community, Chayanov’s twentieth-century

populism stressed the organizational dynamic of peasant

households within an institutional framework. Accordingly,

the economics of the Chayanovian interpretation are

examined from an institutional and organizational

perspective. Such an exercise, it is argued, lends more

credibility not only to the narodnik agenda, but also to the

peasantist model of development.

INTRODUCTION

At the start of the ‘development decade’, Georgescu-Roegen [1960] produced

a seminal paper which questioned the validity of marginalist economic

Professor S.S. Sivakumar, Department of Econometrics, University of Madras, Chennai –600005, India. The questions posed in this article had their genesis over two decades ago in asummer evening’s discussion with Teodor Shanin, and although the two never met afterwards,Shanin’s compelling arguments continued to influence this author. The latter also gratefullyacknowledges Chitra Sivakumar, Aurobindo Ghose, M.N. Srinivas, Burton Stein, U. Ayyasamy,N.S.S. Narayana, David Washbrook, Peter Robb, Prannoy Roy, Sukhomoy Ganguly and DharmaKumar for valuable suggestions during the development of the ideas underlying this article.

The Journal of Peasant Studies, Vol.29, No.1, October 2001, pp.31–60PUBLISHED BY FRANK CASS, LONDON

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concepts in the context of peasant agriculture. When he was writing the paper,

economic development was universally regarded as synonymous with a

transition from peasant agriculture to capitalist agriculture; for neo-classical

theorists, the distinction between the two was that in peasant agriculture the

marginalist economic rules of resource allocation were said to have failed,

while capitalism was said to be governed by these rules [ Nurkse, 1953; Lewis,1954; Ranis and Fei, 1961]. Against this, Georgescu-Roegen argued that

peasant agriculture should be viewed as a distinct organizational form, rather

than as a case of success or failure of marginalist rules.

Significantly, the 1960s also witnessed a revival of interest in the

historical ideas of Russian populism (or narodnichestvo), which flourished

in pre- and post-revolutionary Russia, and covered a range of issues, from

art, through literature to macroeconomics.1 In 1966 the American Economic

Association published the first ever English translation of Chayanov’s

Theory of Peasant Economy.2 Populist ideals and Chayanovian theory about

the peasantry increasingly became a part of the study of economic

development, and the debates (mainly, but not only, between Marxists and

marginalists) about the role of peasantry in this process.

The purpose of this article, therefore, is to examine the agenda of Russian narodnism, both at the level of macroeconomic processes and at the

level of microeconomic decision-making, and to offer an alternative

institutional and organizational perspective on some important populist

arguments.3 To this end, sections one and two are devoted to a brief review

of narodnik macroeconomics and Chayanov’s peasant decision-making

model respectively. Sections three and four offer an institutional and

organizational perspective, both of agrarian institutions and of the

organization of agrarian society (with illustrations from South India). The

final section consists of concluding remarks, with particular reference to the

concept of transaction regimes, which is central to the perspective

advocated here.

I . CAPITALISM, MARKET AND REGULATED DEVELOPMENT

Russian populism, as Berlin [1960: vii] points out, was no single ‘coherent

body of doctrines’, but ‘a broad current of thought, differentiated within

itself’ [Walicki, 1969: 4], as well as a set of ‘shared attitudes and

preoccupations, hopes and fears, longings and hatreds, that were merely

given shape by one or the other ideological formulations’ [Wortman, 1967:

ix]. It would be no exaggeration to add that the concern over the fate of

Russian peasantry was among the most common of these preoccupations,

from Bakunin the anarchist to Vorontsov the ‘legal populist’, from

Chicherin the conservative to Tkachev the Jacobean.

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According to Gerschenkron [1960: 159], the earliest intellectual reaction

against Russian serfdom appeared in the works of Radishchev in 1790.

However, both he [Gerschenkron, 1960: 161] and Venturi [1960: 6] agree

that it was the Decembrist uprising that began the serious reaction against

serfdom. The Decembrists ‘turned again and again to the obschina, looking

upon it as the guarantee of stability and security’, although most of themwere advocates of free trade [Venturi, 1960: 6–9].4 One of them, Bestuzhev,

raised a question, which was to be modified only slightly 50 years later by

Danielson: ‘Which is the more useful for agriculture, great estates or small

properties?’ In 1850 Bestuzhev wrote that the proletariat existed only in the

‘West’ owing to the institution of private property in land, whereas in the

Russian obschina, where land was used merely as a means of work,

proletarianization could not occur. Further, ‘everyone’, however poor,

‘always had the right to a piece of land’. However, the 1850s belonged not

so much to Bestuzhev as to Bakunin and Hertzen, both of whom were the

more influential writers about the Russian peasantry.

The 1860s belonged to Chernyshevsky, who was even willing to

cooperate with ultra-nationalist Slavophiles in order to protect the obschina.

According to Walicki [1969: 18], Chernyshevsky believed that primitivecommunal collectivism was similar to the developed collectivism of a

socialist society; benefiting from the scientific achievements of the West,

Russia and similar peasant economies could move directly towards

socialism, skipping the intermediate stage of capitalism [Schapiro, 1960:

462–3]. At the same time, as Venturi [1960: 174, 165] points out,

Chernyshevsky was an ardent westernizer and supporter of state regulation

of economic activities in order to save the peasants from the ‘monopolies

that were inevitably created’ by an unequal distribution of wealth and

power. As long as there existed inequalities, laissez-faire had no meaning.

By the 1870s, the future of the obschina was no longer a matter of mere

intellectual speculation or reflection. The failure of the edict of

emancipation, enacted by Tsar Alexander II, aroused the Russian

intelligentsia into direct action. The 1870s witnessed the rise and slow

proliferation of (mainly student) groups which discussed the ways of

liberating the peasants from the pincer-like hold of an autocratic state and

the grasping capitalist [Venturi, 1960: 233–52; Utechin, 1962: 7–22].

Eventually such groups threw up the nucleus of what would become the

Bolshevik party. However, they also enabled the emergence of systematic

analysis of the conditions of Russian peasantry. Among the earliest analyses

was that by Vasily Vasilevich Bervi (pseudonym M. Flerovsky), who wrote

The Situation of the Working Class in Russia.

Bervi’s work, which was based on extensive first-hand knowledge,

analysed the causes underlying the destitution of urban and rural workers as

33THE UNFINISHED NARODNIK AGENDA

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well as the small proprietor. The oppressive taxation of the state was seen

by him as the primary source of this destitution, and the poor were preyed

upon further by a growing class of kulaks and merchants [Venturi, 1960:

490, 499; Walicki, 1969: 22–4]. Evidently Bervi believed that only the state

could undo the damage it had caused. Accordingly, he advocated the

creation by the state, on its own land, of a class of independent peasants,who would then cultivate it on the basis of the traditional system of periodic

land redistribution. In addition, the state had to abolish modern forms of

private property in land so that the peasant could be freed from the clutches

of the kulak and the merchant. Thus, while Bervi diagnosed the ills of the

Russian peasantry almost as a Bolshevik might have done, his remedial

prescriptions were almost romantically Slavophile [Schapiro, 1960: 460].

Nevertheless, it is to Bervi that the credit must go for the first enunciation

of the narodnik economic programme: a non-capitalist economic system

based on small peasant farms, which upheld the non-acquisitive moral order

of the traditional village community and its institutions.

The works of Vorontsov and Danielson completed the economic

formulations of nineteenth-century narodniks. Vorontsov’s views on the

possibility of capitalist development in Russia were outlined in a series of publications during the 1880s. In the opinion of Vorontsov, the development

of capitalism in Russia had a dual element [Walicki, 1969: 115–16]:

The historical peculiarity of our large-scale industry consists in the

circumstances that it must grow up when other countries have already

achieved a high level of development. It entails a two-fold result;

firstly, our industry can utilize all the forms which have been created

in the West, and therefore, can develop very rapidly, without passing

at a snail’s pace through all the stages; secondly, it must compete with

the more experienced, highly industrialized countries, and the

competition with such rivals can choke the weak sparks of our

scarcely awakening capitalism.

Both Vorontsov and Danielson were influenced enough by Marx to use the

language of ‘home market’, ‘foreign market’ and ‘surplus value’, as Lenin

[1964: 44] was to observe. According to Vorontsov, the Russian home

market was shrinking, a fact which created problems for the process of

realization of surplus value within the closed economy. At the same time

Russian industry was not competitive enough abroad. In the absence of a

foreign market, and with a dwindling home market, Russian capitalism

would be restricted to ‘small islands of production’ catering mainly to the

upper classes, and would thus not become a ‘prevailing, nation-wide form

of production’ [Walicki, 1969: 118–20]. On the contrary, measures to

increase surplus value, which under the circumstances could consist only of


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labour-saving technology, would further immiserize the working class.

Thus Vorontsov anticipated an almost Marxian interpretation of the ‘crisis

of capitalism’ in Russia long before capitalism was theoretically ‘mature’

enough for such an event.

Additional evidence for the failure of capitalism was to be found in the

Russian countryside: the small producer had managed hitherto to resistcapitalism, despite the ruthless extortion effected by the government.

Vorontsov identified all small landholders as non-capitalists, however much

they participated in the commodity economy; according to him, therefore,

only large rural estates were capitalist. In support of this, he pointed out that

manorial lands were rented out to small landholders rather than large-scale

farmers, since the former were more efficient.5 On the basis of this evidence,

Vorontsov maintained that Russian peasant agriculture was of a ‘higher type

than capitalist agriculture’.

In policy terms, Vorontsov advocated the nationalization of large-scale

industry, the formation of artels to encourage small industries, the

cooperativization of handicrafts, and state regulation of markets for the

inputs and outputs of agriculture and handicrafts. Because in his view

capitalist development was an ‘illegitimate child of history’, and hence‘artificial’ as far as Russia was concerned, it was possible for Russia to

move directly from the stage of ‘pre-industrial popular production’ to that

of ‘socialized popular production’ [Walicki, 1969: 118–20].

Danielson’s major work was entitled Outlines of Our Social Economy

after the Enfranchisement of the Peasants, and it differed significantly from

the arguments of Vorontsov. To begin with, he did not share the latter’s

pessimism about the development of capitalism in Russia, not least because

he accepted that capitalism was already a reality in Russia, as evidenced by

the events leading to the famine of 1891. At the same time, Danielson

agreed with Vorontsov that the lack of international competitiveness in

Russian industry limited the possibilities of capitalism in Russia. On this

point, Danielson argued [Walicki, 1969: 125–6]:

the incompatibility of our forms of production with the needs of the

large majority threatens us with such disasters concerning both

population and state, that we have no other choice than this: to lean on

our historical inheritance and to cease to destroy our ancient,

historical form of production, a form being based upon the ownership

of the means of production by direct producers. It is necessary to do

this in order to avoid the danger which threatens every nation which

departs from the age-long foundations of its welfare. All efforts must

be directed at a unification of agriculture and manufacturing industry

in the hands of direct producers.


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Danielson advocated the ‘socialization of labour’ as a major measure, and

was sceptical of the more moderate policies of Vorontsov, such as

encouragement and regulation by the state of small producers and peasants,

which in the view of the former was ‘tantamount to decree of universal

mediocrity’. The point on which both Vorontsov and Danielson were in full

agreement, however, was the feasibility of a ‘non-capitalist’ path of development and the important role in this of a strongly regulatory state.

To sum up, there were three main features to nineteenth-century

narodnik arguments. First, there existed in Russia a large number of family-

labour-utilizing rural producers who, functioning within the obschina,

constituted a form of production which was more efficient, and historically

more appropriate to Russia, than capitalist enterprise, which depended on

exploitation of labour. Second, these producers constituted the potential for

the development in Russia of a non-capitalist path. And third, the Russian

state had a strong regulatory role to perform in the establishment and

consolidation of this path, through fiscal policy as well as direct controls.

II . THE THEORY OF PEASANT ECONOMY

The key question in the debate between Marxists and narodniks in Russia

was the issue of peasant differentiation: was the obschina an egalitarian

world, or was it internally differentiated? And if the obschina was indeed

differentiated, was there a non-Marxist explanation for it? These were the

questions that Chayanov attempted to answer. At the same time, he also

tried to explain why marginalist (or neo-classical) economics could not

account for the organizational basis of peasant agriculture. In order to

address these issues, he created the ideal-typical category of the ‘peasant

family labour farm’.

Chayanov and Marxism

Since the theoretical claims associated with the Chayanovian framework

have been discussed extensively during the last three decades, it suffices

only to outline its main aspects. First, Chayanov defined the family in

biological terms, and identified a positive correlation statistically between

the sown area of its holdings and the age and size of the peasant household.

Second, productive activity, whether in terms of cultivation or off-farm

income, was determined by the relationship between family consumer

demand and household working members. While Chayanov did not

maintain that per-capita consumption would remain constant in the long

run, he did insist that it constituted the exogenous limit to work effort

expended by the household during a given time-period. Third, the level of

work effort, and hence the demand for farm inputs (i.e. land, capital, seeds,


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fertilizers etc.), was a function of what he termed the ‘equilibrium between

the measure of demand satisfaction and the drudgery of labour’. Fourth,

since this ‘equilibrium’ level of ‘self-exploitation’ varied across families of

different ages and sizes, as well as longitudinally within the same family,

peasant family farms exhibited heterogeneous responses to land, capital and

output markets.6

Often, therefore, they behaved in a manner contrary to therequirements of profit maximization. And fifth, Chayanov [1987: 90]

argued that this model might be applied generally, ‘not merely to the peasant

farm’, but to ‘any family labour economic unit in which work is connected

with expenditure of physical effort, and earnings are proportional to this

effort, whether the economic unit be artisan, cottage industry, or simply any

economic activity of the family’.7

Chayanov’s ideas were criticized fiercely by Marxists, who regarded

them as an apologia for an homogeneous peasantry, composed of economic

actors who appeared to defy the ‘historical’ process of class differentiation.

This was in a sense unsurprising, since it corresponded to Lenin’s criticism

of Vorontsov and Danielson, and Chayanov merely continued where

Vorontsov left off. In his Development of Capitalism in Russia, Lenin

[1964] emphasized that peasant differentiation was well under way in latenineteenth-century Russia, as a consequence of which capitalism was

established in the Russian countryside. As noted above, the narodniks never

denied this, but argued that state intervention on behalf of the peasantry

would arrest this process. Chayanov was no different; he advocated state-

sponsored cooperatives for the peasantry. The key question, therefore, was:

would rural Russia be ‘depeasantized’ by the inevitable development of

capitalism? The debate was terminated abruptly by Stalin’s collectivization

programme in the 1930s.

Chayanov, however, was writing in the 1920s, when the issue was still

open. Together with other members of the ‘Organization and Production

School’, he argued that the future of Russia would be shaped by what

happened to the peasantry, the same point made by his nineteenth-century

predecessors. He did not deny the fact of capitalist development in rural

Russia, but made a distinction between the organization of production on

the farm and capitalism in the larger economy [Chayanov, 1987: 257]; even

where the peasant family farm was involved in commodity production, its

organizational features precluded the possibility of surplus output and thus

surplus value.8 Peasant farms indeed experienced pressures from forces in

the larger economy, but this was because trading or merchant capital, rather

than capitalist production, dominated the Russian countryside.9 Chayanov

advocated marketing cooperatives to combat this. He was particularly

critical of the Marxist tendency to utilize sown area as an index for the

exploitation of hired labour [Chayanov, 1987: 255]. He did not deny the


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existence of hired labour, but insisted that sown area was a poor indicator of

production relations, especially given the organizational dynamics of the

peasant family farm. According to Chayanov, cross-sectional as well as

inter-temporal data showed, more often than not, a correlation between

sown area and the consumer-worker ratio of the family-farm. He was

emphatic that family farms, rather than capitalist farms, dominated theRussian countryside.

The principal flaw in Chayanov’s reasoning lay not in the above

assertion, but in the way he conceptualized the relationship between the

peasant family labour farm and the market. Essentially, all that Chayanov

was able to establish was that peasant demand for land, capital, machinery

and other inputs was heterogeneous cross-sectionally as well as

longitudinally, depending upon the consumer-worker ratio. In other words,

his arguments accounted only for the demand side of the market for inputs.

In the absence of an adequate supply-side argument, Chayanov’s analysis

was able to explain neither markets nor resource allocation properly; he had

no alternative to offer to the Marxian theory of value, which was mostly

supply-side economics. Despite the intensity of the polemical clashes

between the ‘Organization and Production School’ and Marxists, there wasa fundamental inconsistency in the position of the former: if the demand

side of the market was segmented by the heterogeneity of consumer–worker

ratios, what explained the existence of a single price in a market at any point

of time?

The answer could come only through a supply-side argument or an

institutional argument. Chayanov and his colleagues had neither a sound

theory of value nor a sound macroeconomic theory; eventually, this became

the Achilles heel of the Organization and Production School. It did not

matter that Lenin had by the 1920s made fundamental revisions in his

analysis of the class structure of the Russian countryside, especially his

ideas concerning the enigmatic ‘middle peasant’ [Kerblay, 1987: ii]. It did

not matter that there were overwhelming data in support of the family farm

model. The paradigmatic poverty of their macroeconomics put Chayanov

and his colleagues at a considerable theoretical and polemical disadvantage

vis-à-vis the Marxists.

Chayanov and Marginalism

In addition to the charge that he failed to differentiate the peasantry,

Chayanov was also accused of being a marginalist. While the Russian

Marxists used the term marginalism in a limited sense, to refer to the

Austrian School represented by Menger, Bohm-Bowerk, Von Thunen and

others, it would be more useful to consider marginalism in its modern and

generalized version.10 The idea that efficient economic activity equalizes the


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trade-off between gains and losses at the margin is nowadays at the heart of

the neo-classical model in economics. One level of this model deals with the

economic actors’ individual decision processes, based on the postulates of

rationality and economic entropy; given these, the model shows how

utility/profit/net-gain is maximized. The other level of the model deals with

group behaviour among economic actors with opposing responses to prices,who transact from the demand and supply sides of a notional transaction

space called the market; these transactions determine the prices in the

market, as well as the quantities of different goods exchanged.

The Marshallian version of this model has a notional separation between

these two levels of discourse, the individual and the market respectively,

which are analytically linked through the process of aggregation. The

Walrassian model consists of a single discourse known as ‘general

equilibrium’, in which all individual transactions clear simultaneously, thus

pre-empting the need for aggregation across markets. When all markets

clear, or when there is no inventory left in any market, the situation is one

of maximum efficiency, or Pareto optimum. In the Marshallian model, cases

where markets do not clear are recognized as distortions or imperfections.

The Walrassian model does not provide for such situations. What isimportant, therefore, is the presence within marginalism of two mutually

dependent levels of discourse: the micro-level and the macro-level. In order

to qualify as being marginalist, a particular theoretical proposition will have

to be marginalist at both levels. In almost all the recent economic literature

that claims to be marginalist, micro-level use of marginalist tools is

supported by macro-level assumptions of general equilibrium or an

equivalent macroeconomic system.

How does Chayanov fare in this regard? Indisputably, his analysis is

based on an entropic principle: that of drudgery or disutility of effort. The

peasant family farm is a dual-decision entity: it has to decide how much to

consume and how much to work. The number of consumers and workers in

the family constitute crucial analytical desiderata; and the consumer–

worker ratio becomes the most important statistical index in the empirical

testing of the model. The model is a micro-level model, pure and simple.

Even at this level, therefore, there are a number of reasons why this may not

be a marginalist model at all, despite the existence of the entropic postulate.

It is necessary to expand on this point in some detail.

In the 1950s and the 1960s, models of economic development by Nurkse

[1953], Lewis [1954] and Ranis and Fei [1961] envisaged the transition of

peasant households from subsistence-oriented family farming to capitalist

agriculture. All of these, especially the Ranis-Fei exercise, were

characterized by the use of marginalist tools of analysis. Developing

economies were, in fact, considered to be characterized by economic


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dualism [Sen, 1966] in the agrarian sector, consisting of the traditional

family farming on the one hand and capitalist farming on the other. By the

1970s, this model had acquired an almost Chayanovian appearance in the

work of Barnum and Squire [1979] which, however, was a marginalist one

in every sense.

At the same time, there developed identical dual-decision models in thework of Clower [1979] which, while marginalist in design, was used to

demonstrate non-marginalist – in fact, quantity-rationing or neo-Keynesian

– arguments. Similarly, the life-cycle hypothesis of consumption

[ Modigliani and Brumberg, 1955; Ando and Modigliani, 1963] closely

resembled Chayanov’s analysis of the relationship between the age profile

of the peasant family and its level of consumption. By no stretch of

imagination could the works of Clower, Modigliani, Nurkse or Lewis be

termed marginalist, since none of them assume the existence of either a

general equilibrium or an equivalent system. As regards his macro-level

preoccupations, nothing could be less marginalist than Chayanov’s model.11

Consider, for example, the theoretically eclectic collection of concepts that

influence the resource allocation process in Chayanov’s analysis: stochastic

or chance factors, surplus-value of merchant capitalists, linkage betweenproduct and input markets, co-operativized decision making, state

regulation of markets, plus demographic considerations and the dynamics of

land–man ratios.

Granted this, the designation of Chayanov as a marginalist was more

rhetorical and polemical than logically justifiable. Chayanov himself

repeatedly stressed that he had as yet to start reflecting seriously on the

macroeconomic implications of his analysis. Two strands of thought are

clear in his work: that the economic dynamic of peasant household

reproduction is only poorly captured through marginalist and Marxian

analysis; and that both the latter are unable to conceptualize fully a number

of factors that influence the allocation of resources and the distribution of

income in economies predominated by peasant agriculture.

Considering the times in which he lived and wrote, Chayanov’s critique

of Marxism is characterized by caution and prudence, especially in relation

to institutions. That his debate with Marxists and the tone of his polemics

were of a defensive nature is self-evident. The latter notwithstanding, it is

possible to find in his Theory of Peasant Economy many references to the

role of institutions in peasant economy, the most common being institutions

that determine the size and composition of household consumption,

variations in the age and size of the peasant family, and price formation. In

fact, Chayanov’s analysis considers a large number of factors that constitute

the exogenous parameters influencing the relationship between

consumer–worker ratio and labour–time allocation in his family-labour-farm


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model: for example, household-size, land–man ratio, soil and ecology,

distance from markets and bazaars, non-farm skills, prices, institutions and

market forms that link product and input markets, availability of credit and

the size of household wealth, cultural determinants of consumption, group

decision-making institutions, types of risk, technology, social and religious

events requiring time allocation, dynamics of subjective risk perception andthe subjective factors that cause variations in the perception of drudgery.

Another set of institutions is discernible in the work of the nineteenth-

century narodniks and Lenin’s Development of Capitalism in Russia: these

include common property institutions, tenurial conditions, the institutional

role of obschina in determining public goods and common property

institutions (which would affect the type of externalities), customs relating

to periodic land-redistribution among peasants, the nature and incidence of

taxation, the terms of trade between industry and agriculture and the

political interest groups representing peasants. This sizeable list suggests

that a variety of influences were subsumed under Chayanov’s ideal type, in

the same way as they are included in the neo-classical or marginalist

framework under positive economics. Thus, Chayanov’s model would merit

the same immunity from empirical testing as that extended by Friedman topositive economics: it is the result of theoretical analysis that is to be

subjected to empirical testing rather than the theory itself. While the

existence of the pudding itself cannot be verified, whether it tastes like one

can!12 As in the case of neo-classical economics, it would be possible to

build exogenous factors into a peasant family labour-time allocation model.

Like a neo-classical firm, therefore, the peasant family deviates from ideal-

type behaviour when faced with more than one objective. In each case, the

resulting economic activity is best characterized as ‘satisficing behaviour’

rather than as maximizing profits or minimizing drudgery.13 The economic

actor is looking for a ‘good enough’ solution, as Simon [1983: 85] puts it,

‘rather than insisting that only the best solution will do.’

In the case of the peasants, ‘satisficing’ behaviour might arise from a

number of limitations on ‘rational’ economic conduct engendered by

internal (or subjective) aspects of the human personality and unavoidable

external contingencies. All these might have to be covered simultaneously

with the need to attain the desired level of consumption. This behaviour

entails a type of efficiency conceptualized by Leibenstein [1966] as X-

efficiency. An economic actor, or an economic system, is X-efficient when

it functions well within its production possibility limits, for reasons beyond

his/her/its control. Accordingly, an X-efficient Chayanovian peasant would

simultaneously combine all or some of the previously mentioned elements

while deciding allocation of labour-time, cropping plan, type of non-farm

activities and level/type of labour market participation. One of the


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characteristic features of X-efficient ‘satisficing’ behaviour is the innate

dynamism of the decision-making process: as the situation changes, so do

the ‘satisficing’ priorities of the economic actor. The objectives as well as

the decision-making activity under X-efficiency, are parts of the dynamic to

which the economic actor is constantly subject. Let us consider a couple of

illustrations relating to the peasant family labour farm itself.14

The first relates to the objectives of economic activity. In the

Chayanovian ideal-type, the objective is family demand satisfaction; the

peasant family would cease to work once the revenues from effort equal the

family’s consumption requirement. However, from Chayanov’s own data it

is possible to perceive that some peasant families might face constraints

with regard to land, capital or some other input. In these circumstances, the

peasant family might be unable to meet its consumption requirements

whatever the level of effort. Such families would end up trying to maximize

their total revenue from all their activities, which is consistent with the

Baumol [1967] variant of the marginalist theme of profit maximization.

Unfavourable downward shifts in output prices, or upward shifts in input

prices, including interest rates, might also engender the same situation. 15

Finally, if the peasant family does not have enough experience enabling itto assess risk [Shackle, 1955], it might develop a practice of hoarding

wealth whenever possible. In many parts of the world peasant households

find this wealth useful as collateral during times of need. This, too, is a

variant of the neo-classical (or marginalist) maxim of profit maximization.

The moral of the story is simply that peasant households might adapt

themselves to changing objectives and constraints, as a part of the learning

process, which is precisely what ‘satisficing’ means.

This point has a crucial bearing on the debate between Chayanov and

Marxism, since each interprets profit-maximizing behaviour as that of the

stereotypical capitalist.16 In so doing, both schools restricted themselves

needlessly; as demonstrated by the substantial literature on industrial

organization which has come into existence since then; and, as discussed in

Sivakumar [1997a: 29–38], even capitalists maximize profits only under the

hypothetical form of competition which tends to perfection.

The second illustration relates to the participation of peasant households

in the labour market. Chayanov’s ideal type does not entail a significant

level of labour-market participation, either from the demand side or the

supply side. However, the introduction of discontinuities changes all this

rather dramatically. Consider, for example, seasonal variations that induce

sharp fluctuations in labour demand in agriculture throughout the world.

Peasant families that can afford to hire in labour during the peak season do

so, even if their own family labour remains unemployed during the slack

season. Hence the hiring-in of labour during the peak season does not


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necessarily convert the peasant into a ‘surplus value’-appropriating

capitalist. One needs to know something about unavoidable discontinuities

in labour demand before one is able to judge this.

Conversely, other peasant families, unable to hire in enough labourers,

might hire out all their labour, allowing their own lands to remain fallow for

the season. There are a number of reasons why this might happen, not all of them indicative of rural proletarianization. A reasonably wealthy peasant

household might have pledged its assets as collateral to meet some

emergency, and hence possesses no resources to invest in a cultivating

season; in the world of the peasant, quite aside from droughts and crop-

failures, a marriage or a funeral – or, indeed, any other socially necessary

expenditure involving large scale consumption – is known to trigger such an

emergency [ Mauss, 1990: 65–66; Bataille, 1988: 32–34]. That a peasant

household has recourse to hiring-out its family labour for a particular season

does not, therefore, mean that it has become proletarian. This fact is

recognized in vernacular utterances. Thus, for example, most Tamil-

speaking peasants in South India distinguish between ‘being poor during a

draught’ ( panjattu aandi) and ‘being hereditarily poor’ ( paramparai aandi).

More generally, the cross-sectional data available to Chayanov and hisMarxist critics did not permit a judgment as to whether or not capitalist

production relations were developing in Russia. Just as those peasant

households that hired in labour on a seasonal basis were not necessarily

capitalist producers, so the ones that hired out labour on the same basis were

not necessarily proletarians. Many peasant households had intermediary

working arrangements, involving monetized or traditional labour exchanges

with kinsfolk and/or fellow villagers.17 Chayanov and his Marxist

adversaries were thus on shaky grounds when they accepted hiring-in or

hiring-out of labour only as characteristics of capitalist production relations.

By categorizing peasant households hiring in labour as profit maximizers,

they merely compounded this error, thereby detracting from an

understanding of Russian peasant society. The simultaneous hiring-in and

hiring-out of labour by peasant households itself gave rise to the notoriously

problematic category of ‘middle’ peasant, the characteristics of which

continue to elude much contemporary analysis.

The lesson of these two illustrations is clear: both Marxism and

marginalism are incapable of capturing the nuances of X-efficient

‘satisficing’ behaviour, and of learning processes in general. This was

Chayanov’s message, notwithstanding the fact that he could not afford to be

explicitly critical of Marxism. He observed [Chayanov, 1987: 27] that ‘only

rarely in economic life do we come across any economic order like a pure

culture, to use a term borrowed from biology. Usually economic systems

exist side by side and make for very complicated conglomerations.’


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At the same time, it is beyond dispute that both Marxism and

marginalism offer much that makes sound common sense. Excepting the

hypothetical perfectly competitive market, all other markets explicitly

involve the presence of economic actors who try to influence price-

formation and the process of allocation of resources in their favour, thereby

making the political economy of domination and subordination a centraldiscourse.18 Marxism is, to date, the most systematic – if somewhat limited

– formulation of this political economy. Similarly, the marginalist

proposition that scarcity induces a trade-off between gains and losses, and

among the options constituting a choice set, is an eminently sensible truism.

Chayanov accepted, without demur, the basic propositions of both

marginalism and Marxism, while seeking to transcend both. This was the

underlying message of the first half of his work On the Theory of Non-

Capitalist Systems. As Shanin [1987] rightly points out, it is this broader

and deeper perspective – not that of Domar [1968] – that is the only

meaningful way in which to interpret Chayanov. Is it possible, then, to

develop an approach to the study of agrarian systems that would

simultaneously explain an X-efficient ‘satisficing’ micro-level decision

framework involving a learning process, as well as the macroeconomics andthe institutions of hierarchy, subordination and dominance? This is the

question which the next section attempts to answer.

Conceptually, X-efficient ‘satisficing’ behaviour means that peasant

decision-making processes do not follow any single objective function, such

as the maximization of profit. The arguments that follow are intended to

show that the factors that appear to hinder the maximization of profit are

also the sources of agrarian institutions and of the agrarian structure.

III . PEASANTS, INSTITUTIONS AND AGRARIAN STRUCTURE

It has already been observed that marginalist theory rests on two postulates:

rationality and economic entropy. The simplest interpretation of rationality

is that people are ‘smart’, in the sense that they would like to get the best

out of every situation. However, the postulate goes further, and makes two

strong claims about human psychology. First, the economic actor is

consciously self-seeking in all his/her activities, including gregarious or

altruistic ones. And second, the conscious part of his/her being is all that

matters.19 In its simple version the second postulate – that of economic

entropy – simply states that the objects used by human beings have finite

use-value. However, since the mathematical proof of the efficiency of

rational economic choice depends on the use of calculus, this postulate goes

further: as economic objects are continuously used, the subjective index of

their use-value (or utility) must continuously decline, until there is no value


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left to be used. When the utility of an object is plotted as a mathematical

function of its use, its slope and its convexity are central to the proof of the

efficiency of rational choice.

Thus the utilities of objects – the productivity of labour and the yield of

land – declines, till they are all zero. 20 Chayanov’s drudgery function is of

this type. The generalized form of this postulate is variously known as thelaw of diminishing returns, the law of diminishing utility or the law of

diminishing productivity, depending upon the object under use. The rational

individual who perceives this will not use the object if its marginal utility is

lower than the price (as money or goods or effort), that she/he has to pay for

it. This condition that, at the limit, the use-value of objects is not less than

its exchange-value, is the central rule of efficient behaviour and constitutes

the marginal utility-rule, or the marginal-product rule. When a producer

observes this rule strictly in the market for all his inputs, the marginal cost

of production will equal the marginal exchange value of the product. This is

the golden rule of efficiency for the economic system as a whole: the

equality of marginal cost and marginal revenue. When this happens, profits

are maximized; not merely by a single producer, but by all of them

simultaneously. Thus microeconomic efficiency coincides withmacroeconomic efficiency. The key question, therefore, is whether the

peasant can observe these rules of efficiency, and hence whether he can

maximize his profit. He encounters his first hurdle when dealing with

nature.

Agriculture and Nature

Agriculture may be considered as the harnessing and the reorganization of

the environmental and soil conditions under which plants grow. It is a

conscious human intervention into an ecological system, or a given

organization of nature. Plants themselves, being part of the organization of

nature, have their own propensity and capability to live, grow, survive and

reproduce, quite irrespective of human intervention. This being so, inputs

applied by human beings towards the selective growth and propagation of

plants – cultivation, in other words – will have only an indirect influence

over the plant’s autonomous and symbiotic conduct with respect to its

environmental as well as homeostatic conditions.

This type of production must be distinguished from that of the assembly

line in a modern factory, where the output consists of objects whose nature

and character are entirely predicated on human design. The assembly line

represents the organizational structure or production function in its most

controlled form, wherein the instrument as well as its object are exclusively

a function of human design. In contrast, the agricultural production function

is far less controlled: human beings try to intervene in an already organized


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nature. The productivity of the inputs assigned for this purpose is subject to

the way nature accepts them. Hence the relationship between inputs of

human design and agricultural output cannot be strictly determined.

Consider, for instance, the relationship between any single agricultural

operation – say, ploughing – and the output. While the cultivator knows that

it is necessary to plough the land before sowing the seeds, he cannot predicthow much of the output would be attributable to the activity of ploughing

as distinct from (say) that of weeding. For the plant will grow and yield

anyway. Under such conditions, costs of different operations and the shares

of output attributable to different operations cannot be related on a one-to-

one basis, but only along an approximate range. Similarly, input prices and

productivities will also be related only as an approximation. Both

relationships can be only indicative and qualitative.21 Marginal equalities do

not come about. This is the first of the problems of indeterminacies in

agriculture.

Externalities and Uncertainty

The next two problems relate to externalities and uncertainties in

agriculture. Externalities take many forms: for example, upstream waterusers tend to add to the salinity of water to the detriment of downstream

users, application of pesticides in one field causes the pests to migrate to a

neighbouring field, manure applied in one field is likely to get washed into

the neighbour’s field through common irrigation channels, and communal

grazing of cattle in the open fields adds to the fertility of all fields,

irrespective of who owns how many cattle. The complex and symbiotic

relationship between cattle and crops is the oldest among agricultural

externalities. What externalities do is to create further indeterminacy in the

relationship between inputs and costs, and between productivities and

profits. Marginal equalities are once again difficult, if not impossible, to

demonstrate. It is clear, moreover, that a number of externalities are

contingent on different definitions of property. For instance, common

property would minimize some of the externalities noted above. Perhaps

this was the logic informing the customary common ownership of land

combined with periodic redistribution of its use among peasant families, a

practice found not merely in pre-revolutionary Russia but also in South and

South East Asia.

Uncertainty in agriculture takes a variety of forms: for example,

fluctuations in rainfall, humidity and other environmental conditions cause

fluctuations in output. This is important if we acknowledge the fact that all

agriculture is inherently dependent on credit: resources and labour have to

be committed to cultivation long before the land yields. Fluctuations in

output make the problem of agricultural insurance among the most complex


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of problems. There are two types of uncertainty, the statistical variety and

the Shacklean variety, and almost all the study of uncertainty in neo-

classical (or marginalist) economics is of the statistical variety.22 One of the

earliest discussions of uncertainty relevant to the matter in hand is

attributable to the writings of Shackle [1955], who argued that the process

of conducting enough experiments to acquire adequate knowledge of economic events for the reduction of uncertainty into the probability of risk,

would by itself be prohibitively expensive. Therefore economic uncertainty

could not be reduced to an estimate of risk. If we consider the immense

problem of agricultural uncertainty, there is no doubt that it is of a

Shacklean variety. In turn, this would mean that uncertainty compounds the

problem of indeterminacy in agriculture considerably. The implication is

that credit markets in agrarian economies are characterized by a range of

interest rates, rather than single equilibrium values.23

Overarching Credit Markets and the Problem of Insurance

It is now time to draw together our inferences. First, the fact that plants are

a part of the organization of nature means that input productivities, and

therefore input prices, arising out of human intervention, becomeindeterminate. This problem is particularly pronounced in the labour

market, where another source of indeterminacy arises from the fact that

labour input occurs in teams. The existence of externalities also makes the

estimation of agricultural costs problematic, and hence makes questionable

most methods of estimating the economic rent (= difference between yields

of plots of land of different qualities) and thus, also, the capitalized value of

land. Accordingly, the market for agricultural credit becomes the most

complex of all markets. On the one hand, credit has to be committed without

an adequate prior knowledge of how costs and productivities are going to

behave. On the other, the existence of Shacklean uncertainty makes it

difficult for the peasant farmer, or his creditor, to formulate a satisfactory

distribution of the probability of different events on which to base output

and yield expectations.

The market for agricultural credit is, indeed, vulnerable on a number of

counts. The creditor needs a twofold insurance; one in relation to the cost of

the venture financed by creditor, and the other in relation to its revenue.

Consequently, there is a need to control the market for inputs financed by

creditor, so that he will have some say over the way inputs are used. At the

same time, there is the need to control the market for the output, so that the

creditor will be able to control the earnings of his debtor. In undertaking

these two forms of control, the creditor’s risk is spread from a single market

(credit) to many markets (credit, input and output). Thus in almost all

agrarian economies, it is common to find the input and output markets


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enveloped within an overarching credit market.24 The requirement for

insurance, which leads to overarching credit markets, constitutes the basis

of some of the most important organizational forms and institutions in

agrarian society. These forms and institutions usually determine not merely

the prices of different inputs (including labour) but also the modalities of

payment, of bargaining and of arbitration and settlement of disputes overthese. Thus the political aspect of agrarian society is interwoven with its

economic aspect at the lowest level: that is, the peasant farm.

It is evident, therefore, that the credit market will be one of the key

factors determining political-economic hierarchy. Nothing – except water

(see below) – is more important than credit in the agrarian economy.

Consequently, for any given distribution of wealth at a point of time, the

hierarchy will also reflect differing degrees of control (or, conversely,

dependency) with respect to the credit market. In the context of uncertainty,

information acquires crucial importance. It is reasonable, therefore, to

consider that asymmetry in access to information (more generally, access to

education, scientific and technological knowledge and institutions relating

to these) coincides with the asymmetry in the distribution of wealth, which

also the basis of credit. Thus, the basic structure of the interest groupsinvolved in macro-level political economy acquires its definition at the

lowest level, the farm. Equally important, institutions and organizational

forms of governance and of subordination and authority are historically

constituted as the morphological basis of economic processes. The history

of contestation and collaboration in relation to the power embedded in a

hierarchy is, therefore, also the history of agrarian institutions and social

organizations. As the following case study from South India demonstrates,

the processes relating to micro-level agrarian institutions are the

determinants of the morphology of agrarian history.25

IV. IRRIGATION INSTITUTIONS AND AGRARIAN STRUCTURE IN

SOUTH INDIA

Tondaimandalam is an ancient eco-cultural zone in South India,

encompassing parts of the modern states of Tamilnadu and Andhra Pradesh.

Most of this region consists of mildly undulating coastal country, with a

scattering of hills. This area also contains ancient man-made irrigation

reservoirs (known as yeri), many of them over a thousand years old. These

reservoirs store the water from the north-east monsoon rains during October

to December; unlike the rest of India, the south-west monsoons of June to

August are highly unpredictable in this region.

Ranging in size from 0.2 sq. km. to 9 sq. km., these reservoirs often form

complex chains, linked by channels both to each other and to rivers. Usually


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water runs down a catchment area (usually, the high ground at the base of a

chain of hills) and floods the reservoir with enough storage to last four to

six months. Some of the reservoirs hold water for a period of ten to 11

months. The dyke that restrains the water at the lower ends of the reservoir

(called a bundh or karai) is man-made, and contains a sluice, which is a

large slab of granite with hole in it. This hole is stopped with a large woodenpeg rolled up in cloth or sacking material. As the fabric expands with

moisture, it effectively blocks the exit of water. When fields are to be

irrigated, the sluice attendant dives into the water and removes the peg.

From each sluice, a channel distributes water to the surrounding fields.

There are some major organizational implications underlying such an

irrigation system. First, not all fields abut the channels. In such cases, the

task of getting water to one’s field usually involves the erection of a

temporary dam in the main channel to raise the level of water, and divert it

over shallow temporary channels across the fields contiguous to the main

channel, on to one’s own field. Second, seepage along the channels leads to

a considerable loss of water. Present day agricultural engineering estimates

put the combined water loss due to evaporation and seepage at around 20

per cent. This means that the water-use per unit of land increases as onemoves away from the sluice. Conversely, the further away one’s fields are

from the sluice, the less assured the water supply becomes. This is often

referred to as ‘the problem of the tail-end area farmers’, or a situation where

nature creates inequities. Finally, the heterogeneity in the quality and the

size of plots of land in the command area of the reservoir imposes varying

degrees of economies (or diseconomies) of scale on the cultivators’

irrigation activities.

Irrigation management of this type is complex, and involves calculation

of water in storage (which varies according to rainfall and the duration of

storage), the length of channels, the quality of soil, the distance of fields from

the channels, the type of crops, the number of claimants to water rights, their

position in the socio-economic hierarchy and so on. Since there is variation

of these parameters from village to village (or catchment area to catchment

area), regionally centralized irrigation management is neither feasible nor

conceivable. The need to plan and manage the use of locally heterogeneous

irrigation resource efficiently led historically to the emergence of water

management organizations that were to a considerable degree autonomous.

In a system as complex as this, disputes are an ever-present possibility.

Taking water from the channel is a matter of importance for a peasant

farmer. From his point of view, his needs take precedence over those of all

others. Violation of the norms of water use is thus an attractive proposition,

and hence a constant source of friction and dispute. Cultivators whose fields

are located some distance away from the main channel have further


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problems. Taking water through someone else’s field requires at least a tacit

permission. The existence of a dispute between the respective owners of the

fields over other matters, for example, could manifest itself in terms of a

denial of permission to access water in this manner.

Irrigation management organizations are therefore constantly involved in

adjudication and arbitration of disputes regarding water entitlements and theenforcement of these entitlements. It is but natural that these organizations

are called upon to adjudicate and arbitrate in other matters involving water

users. The extent to which they are called upon to do so depends upon the

relative importance of water management activity in the locality. Broadly

speaking, the greater the quantum of water resources to be managed (either

in terms of months of possible irrigation, or in terms of quantum of water use

per unit of land), the greater the influence exercised by these organizations

outside the specific domain of water management. Conversely, in sparsely

irrigated localities, water management organizations may find it difficult

even to enforce water management norms. Historically speaking, the role of

the trader-cum-money-lender has been more powerful in relatively sparsely

irrigated rural areas of South India, while land-water oligarchies have played

an equally powerful role in irrigated tracts.26

Organizational Imperatives of Paddy Cultivation

Crop diversity accentuates the transaction costs of water-management

regimes such as the one in Tondaimandalam. The consequent advantage of a

similar cropping pattern was further enhanced in this area by the existence of

fairly uniform soil and climatic conditions suitable for the cultivation of

paddy (rice). By the eighteenth century this region had become one of the

major paddy-growing areas in South India. There were two major agricultural

seasons (known as bhogum) in the region: the samba season, lasting from July

to January, and the navarai, lasting from January to April. Since the crop

calendar followed the dictates of irrigation management, at least during the

first season, labour demand on the part of cultivators also had a uniform

seasonality. Peak demand occurred during the Tamil months of maasi (15

January–14 February), aani (15 June–14 July) and aipasi (15 October–14

November). For the rest of the year, there was an excess supply of labour.

If demand and supply alone were to decide wage rates, peak-season

wage rates would be beyond the reach of most of the farmers.27 In addition,

as we have noted earlier, wage determination is generally problematic in

agriculture. Not surprisingly, rewards for labour were decided by a complex

set of payments – ranging from a monthly subsistence allowance, through

harvest bonuses, to periodic gifts – which ensured subsistence during a

slack season, stabilized peak-season fluctuations, provided an insurance

against moral hazard and created a strong basis for negotiation and


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bargaining. Further, the system of rewards also emphasized the symbiotic

nature of the labour market: employers and employees depended on one

another for survival, but each category also occupied conflicting bargaining

positions over their respective shares from village output. While their

interests within agriculture were essentially of a conflicting nature,

therefore, agriculture itself would cease if they did not find methods of mutually acceptable cooperation.28

The specific arrangement arrived at would eventually depend upon

varied ecological agronomic and demographic conditions that characterized

different parts of the region. The most important among these factors, as

already noted, was the linkage between land and water. Individuals or

groups (i.e. kin groups or caste groups) with dominant claims over land

were also those with dominant claims over water. Thus water and land

resources were tied to each other through claims over control, as well as

claims over use.29 Finally, since land and water entitlements constituted the

basis of demand for labour, we may infer that land, water and labour

resources were linked through webs of use as well as webs of entitlement . In

short, they constituted the basis of the hierarchy of interests, the economic

basis of the political order at the ground level. Needless to say, thedistribution of wealth and income, as the basis of agricultural credit, was

ubiquitous as the overarching aspect of this hierarchy.30

V. CONCLUDING COMMENTS

Marginalist analysis, it has been argued, suffers from major limitations in its

ability to explain what, and how much, would be produced in agrarian

economies. The political economy of such societies is necessarily grounded

in micro-level decision-making processes. Crucial determinants of such a

political economy arise from overarching credit markets and the webs of

entitlements over resources, which throw up hierarchies of interests. Since

agriculture depends strongly on nature, ecological and irrigation-related

factors also play a strong role in determining the nature of such hierarchies.

Clearly, there are also important implications for the psychological

postulates underlying marginalism; in a milieu where group control over

resources and wealth are crucial desiderata, it would be better to speak of

the psychological and behavioural aspects of the individual as being

significantly influenced by group imperatives. Therefore the unconscious

aspects of the ‘self’, wherein one’s ‘social identity’ overlaps one’s ‘personal

identity’, are at least as important as the conscious ‘rational self’.31

Rationality is accordingly bounded by two sets of limits: external limits to

one’s ‘rational’ conduct, and the internal (or subjective) morphology of the

‘self’ [Simon, 1993]. Not surprisingly, the agrarian economy is best


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characterized as an X-efficient system where every economic actor is

oriented towards ‘satisficing behaviour’, rather than optimizing behaviour.

The organization of economic processes, however, necessarily occurs

within a framework of entitlements defined by the politico-legal and

cultural organization. The nature and structure of entitlements engendered

by a given politico-legal and cultural organization, its diverseinterpretations among economic actors and the dynamics of adjudication

and arbitration among them involve different magnitudes of transaction

costs. Together, the politico-legal and cultural organization, as well as the

resulting economic institutions and organizations, may be designated as a

transaction regime. Such regimes may be taken to denote the totality of

exchange processes, interest groups, institutions of hierarchy and

organization and the state as the legitimizing and regulating authority. If

different types of markets are characterized by different normative and

institutional limits to efficiency, then markets are a lot more than the mere

notional spaces for economic transactions that theoretical convention makes

it out to be: markets are transaction regimes.

Being transaction regimes, markets are also cultures. The received

wisdom of much modern economics is that pre-capitalist economies aremore culturally influenced than are capitalist ones, and the theoretical

convention acknowledges cultures only within the ambit of economic

determinism. Although this is not the place for an extensive discussion of

this issue, it must be observed that there is much evidence to the contrary,

not all of it from sociology or anthropology.32 Although nineteenth-century

narodniks stressed culture much more strongly than did Chayanov, the

above discussion of transaction regimes offers a corrective to this. In

particular, Chayanov’s [1987: 28] plea for a more comprehensive view of

historical processes, should be noted:

we have no doubt that the future of economic theory lies not in

constructing a single universal theory of economic life but in

conceiving a number of theoretical systems that would be adequate tothe range of present and past economic orders and would disclose the

forms of their coexistence and evolution [emphasis added].

Both Marxism and marginalism fell short of his expectations this regard.

Each espoused theoretical constructs which had scant regard for factors

underlying morphological processes in history. The neglect of the latter by

the Bolsheviks should not, however, be attributed to Marx, who explicitly

showed awareness of the possibility of (if not the importance of) such

processes in Volume III of Capital. As pointed out elsewhere [Sivakumar ,

1986; Sivakumar and Sivakumar , 1993], Marxism and marginalism are

centrally characterized by a substantivist preoccupation, which celebrates


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axiomatic (or paradigmatic) consistency rather than completeness of

perception. By contrast, the idea of a transaction regime lends itself more

easily to the understanding of morphological processes. At the same time,

neither Marxism nor marginalism stands negated by the study of transaction

regimes. In the X-efficient decision framework, marginalist solutions as

well as Chayanov’s drudgery minimization can be shown as special cases.33

The concept of transaction regimes has two important aspects that

recommend themselves. The first is the morphological rootedness of

transaction regimes in ground-level factors (from ecology and land-man ratios

to language, culture and ethnicity) which define the basis of entitlements,

economic organizations and hierarchy. In other words, economic institutions

are derived ‘from below’, rather than from hypothetical or paradigmatic

conjecture. The concept of transaction regime might be viewed as a more

complete analytical category with a capacity to highlight features of what the

narodniks called non-capitalist economic systems. In this sense, it may be

seen as a possible response to Chayanov’s quest for a ‘theory of non-capitalist

systems’. Secondly, transaction regime is an inclusive concept. It need not

refer to a single mode of production, although this too is possible as a special

case. More generally, it can be seen to consist of a number of modes of production, or a number of overlapping patterns of subordination and

dominance, or of a plurality of context-based hierarchies.34

It might be argued that an overlap between different kinds of hierarchies and

interest groups might define an unstable macroeconomic system, in which

the formulation and implementation of economic policy was fraught with

uncertainty. In keeping with the literature on the ‘incentives of political

stability’, it might be argued further that the entire public-interest theory of

the state underlying Keynesian and monetarist economics is violated by the

idea of transaction regimes. In reply to these points it could be pointed out

that such ‘instability’ has, in fact, been the basic characteristic of the state

during most of history, except for periods when a powerful dynasty, a

charismatic leader or an interest group has ruled. It is possible to explain

such periods too as special cases in the study of transaction regimes.

It is evident that none of the participants in the debate about the peasantry

– Chayanov, the narodniks, and the Russian Marxists – had a clear picture of

the agrarian situation in Russia during the decades of the revolution. The

narodniks had a weak theory of the state, which undermined their position in

debates with the Marxists, while the latter depicted the Russian countryside

exclusively as a zone of conflict between rich and poor (the kulak and the

bednyak ). The attempt on the part of Marxists to sweep the vast number of

cultivators who did not fall into either of these two classes into a residual

‘middle peasant’ category failed with Lenin’s acknowledgement of his

having misunderstood the issue. By then, however, the revolution was a fact


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of history and Stalin had successfully manoeuvred himself into power; what

Lenin thought about Russia in the 1920s was hardly relevant to the events

that were to unfold in the countryside during the following decade.

In fact, it was not the Marxists but Chayanov who formulated a

meaningful theory of peasant-decision-making that explained the economics

of the so-called middle peasants. He also attempted – not wholly successfully– to formulate a theory of non-capitalist economic systems. In this he was

beset by the same problem that plagued his nineteenth-century predecessors:

a weak theory of the state, and a poor explanation of dominance,

subordination and hierarchy. Because of this, the originality of Chayanov’s

work and the profundity of his questions were lost in a polemical deluge. In

an attempt to rectify this, the argument presented here has attempted to

formulate a series of institutional and organizational explanations –

encompassing markets, state and interest groups in a theory of non-capitalist

economic systems – that highlight the non-Marxist and non-marginalist

aspects of his analytical framework. Such a theory, it is argued, might better

explain the agrarian situation in much of the Third World today.

NOTES

1. Some of this literature was an explicit study of narodnism, while others impinged uponnarodnism in their evaluation of Marxism in Russia and elsewhere; for instance, Mitrany[1951], Haimson [1955], Billington [1958], Venturi [1960], Malia [1960], Pipes [1960; 1964],Schapiro [1960], Mendel [1961], Utechin [1962], Wortman [1967], Walicki [1969], Meisner[1971], and Shanin [1972; 1974]. More generally, modern forms of populism are discussed inWorsley [1964], Ionescu and Gellner [1970] and Van Nierkek [1974].

2. Subsequently, the Oxford University Press republished it in 1987. It is this later version of Chayanov’s Theory of Peasant Economy that is used here. This growing interest in theeconomics of peasant agriculture, and in the narodnik economic program, culminated in theemergence of journals exclusively devoted to the study of peasants during the 1970s, one of which was The Journal of Peasant Studies.

3. Because the focus here is on the historical reception of Chayanovian theory in his times, noattempt is made to address the critiques of this by recent and current Marxist theory. The latterare well known, and have received extensive coverage in this journal – see, for example,

Harrison [1977a; 1977b; 1979] – and elsewhere [ Littlejohn, 1977; Kitching, 1982].4. The word obschina is used in this work in the same sense as mir or the village community,

which also housed the zemstvos after the abolition of serfdom in 1861–62.5. This was also to be the main argument of Chayanov 40 years later. More recently, this was the

basic contention of Amartya Sen [1962], which led to nearly two decades of debate amongIndian economists on the relationship between size and productivity of farms in India. See alsoSivakumar [1977, 1980a, 1980b, 1986].

6. Chayanov [1987: 64] himself is not certain about the direction of causality between familydemography and sown area. At the same time, his use of consumer–worker ratio as ananalytical tool pre-empts much of the ensuing confusion. His model rests on the belief that, atleast in the short run (an agricultural season?), this ratio constitutes an independent variableinfluencing the level economic activity.

7. In this sense, Chayanov might truly be considered the founder of the economics of the informalsector.

8. Surplus output was not possible because peasant output was constrained by family


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consumption demand, which was postulated to be constant in the short run, an assumption thatinvited criticism even during Chayanov’s own lifetime. To this criticism Chayanovsarcastically retorts: ‘We ourselves do not have such a conception and are inclined to believethat no peasant would refuse good roast beef or a gramophone, or even a block of Shell OilCompany shares, if the chance occurred.’ What was left unsaid was that he also believed that,barring the roast beef, the above events had an extremely low probability in the life of a peasant.However, this is not the same as saying that consumption was ipso facto a constant. This

ambivalence arose essentially because of Chayanov’s unwillingness/inability to figure out along-run model as distinct from a short-run model. That such a distinction would lay to rest alot of the apparent ambivalence in Chayanov’s model is illustrated in Sivakumar, Nagarajanand Velmurugan [1996].

9. Chayanov [1987: 257] quotes studies by Lenin, Hilferding and Lyashchenko to support thisargument.

10. The Bolsheviks were not alone in this belief. See Gide and Rist [1913: 488–505].11. Chayanov [1987: 220] considers macroeconomics to be the weakest link, or ‘the main error’,

in marginalist analysis. As regards his own concerns, Chayanov is explicit: ‘My whole analysisup to the present has been one of on-farm processes’. Further, in his Theory of Non-Capitalist

Economic Systems, Chayanov’s ideas come very close to those of Schmoller and other GermanHistoricists: ‘Therefore,’ he observed [Chayanov, 1987: 27], ‘it seems much more practical fortheoretical economics to establish for each economic regime a particular national economictheory.’

12. In particular, see ‘ The Methodology of Positive Economics’ in Friedman [1953].13. See Cyert and March [1963], Simon [1955; 1959; 1987], and March and Simon [1968].

Another approach is that of evolutionary economics [ Nelson and Winter , 1982], where

alternatives to a neo-classical profit-maximization objective are seen in short-run ‘routines’ anda long-run ‘search’ for better and better routines .As may be inferred from Simon [1983:66–9],there does not seem to be any conflict between these approaches, as long as we grant that such‘routines’ may not necessarily yield the best results in a long-run ‘search’.

14. The ensuing discussion is based on a more extensive analysis of X-efficient macroeconomicsystems, and the illustration of X-efficient peasant households, in Sivakumar [1997a: 60–66],and also Sivakumar, Nagarajan and Velmurugan [1996].

15. The role of efficiency in the formulation of budgetary equilibrium of such ‘price-taking’ but‘non-competitive’ households is discussed more extensively in Sivakumar, Nagarajan andVelmurugan [1996].

16. In India during the 1970s there was extensive debate among Marxists about the mode of production in Indian agriculture [ Rudra et al., 1978; Thorner , 1982]. Almost all the participantsdefined capitalist farmers as cultivators who hired labour and exhibited a profit motive. Someof these issues are dealt with empirically and theoretically in Sivakumar [1977, 1980b].

17. Since Chayanov’s time anthropological and economic research has compiled much informationon the relationship between kinship and labour organization in Africa and Asia. Contemporaryand historical South Indian data of this type are explored in Sivakumar [1978] and inSivakumar and Sivakumar [1979; 1993].

18. For a non-political-economic, and more orthodox, approach to recent theories of predation inmarket economies, see Tirole [1988: 364–88].

19. As Georgescu-Roegen [1971: 342] observes, there is a Weltanschauung beneath each form of rationality: ‘Nothing is more natural than the inability of the standard economists to understandtheir German colleagues who insisted on bringing in such “obscurantist” ideas as Geist orWeltanschauung into economic science.’

20. More generally any activity – including leisure – depletes ‘free energy’ in land, labour,machinery and so on. As Georgescu-Roegen [1971: 277] puts it, ‘our whole economic lifefeeds on low entropy, to wit, cloth, lumber, china, copper, etc., all of which are highly orderedstructures.’ The question is whether a universal principle such as entropy can be reduced torefer to units of labour, machinery etc. Once again, Georgescu-Roegen [1971: 277] is explicit:‘the only reason why thermodynamics initially differentiated between the heat contained in theocean waters and that inside a ship’s furnace is that we can use the latter but not the former.’

21. There are two ways of paradigmatizing this problem. One is through contingent costs: there areso many things happening to the soil and seeds since the time of ploughing and sowing, that it


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is impossible to contemplate – let aloneforesee – all of them. The other is to follow Georgescu-Roegen [1971: 298–9], and explain that ‘the lasting obstacle to man’s manipulating livingmatter as efficaciously as inert matter’ lies in the absence of human knowledge of all cosmicinformation on genotypes, and the corresponding absence of an ability to delve into the deeperrecesses of micro-genetic systems. Notwithstanding all of scientific progress, the fact remainsthat we do not know the limits to either of these quests.

22. The statistical version assumes that we have enough knowledge about events to be able to

estimate – and thus represent statistically – the risk associated with them. This is the statisticalvariety of uncertainty, measured and reduced to an estimated risk. Theoretically this wouldenable the farmer to plan the amount of expenditure he would need to commit to the crop, undera given probability distribution of crop-related events, and hence to determine the amount of credit needed for the crop. Almost all of agricultural economics depends on probabilitydistributions of this type. We must also distinguish between natural and man-madeuncertainties. While the former may depend on rainfall, humidity etc., the latter is an outcomeof human intervention in nature, and involves issues such as soil toxicity and ‘exhaustion’,irrigation salinity etc.

23. Shackle’s arguments underlie the neo-Keynesian critique of neo-classical beliefs in the long-run stability of interest rates. Under these conditions, neo-Keynesian economists argued thatrisk-aversion would lead to types of portfolio behaviour different from those suggested bystatistical probability. Field studies in South Indian villages have shown the considerablesignificance of Shacklean risk perception, which governs asset preference and economicmobility among peasant households [Sivakumar , 1978; Arunachalam, 1986]. There is alsoanother way of looking at this problem: in the case of foreseen but difficult-to-provide-forcontingencies, therefore, contracts cannot contain accurate estimates of contingent costs. While

the Shacklean approach deals with the issue as one of ‘subjective’ boundaries to ‘rational’conduct, the contingent cost approach refers to the ‘objective’ problem of the impossibility of determining a probability distribution of risk. Simon [1983: 84–7] argues that such distinctionsmight be redundant if rationality itself is ‘bounded’.

24. Overarching credit markets mean the same as ‘inter-connected’ or ‘inter-linked’ factor markets[ Bardhan, 1989]. What the economics of market inter-linkages fails to observe, however, is thesignificance of Shacklean uncertainty in creating overarching needs for insurance in the creditmarket. The kind of problems that we have considered, involving the ‘determination’ and‘monitoring ‘ of effort, also fall under the moral hazard genre of issues. Moral hazard originatedin insurance-related studies, but has come to address a wider range of problems involvingconflicting interests between principal and agent [ Arrow, 1985; Scherer , 1988; Hart and

Holmstrom, 1987]. From this point of view, overarching credit markets and other organizationalimperatives of agriculture could be looked upon as institutions through which moral hazard isminimized. Since we are not concerned with models of microeconomic equilibria involvingmoral hazard, it would be sufficient to acknowledge the powerful organizational implications of moral hazard. In general, the higher the cost of setting up governance structures [Williamson,1985], the greater the moral hazard.

25. The morphology of agrarian history also depends upon the degree of regional homogeneity or

heterogeneity in such agrarian organizations. In turn, these are conditioned by the degree of regional homogeneity or heterogeneity in terms of population, soil, climate, irrigation and thecrops cultivated, which reflect the state of nature, the type of uncertainties and externalities andthe quality and quantity of labour used. Local variations in the institutional and organizationalaspects of the agrarian society and political economy may be taken as morphological responsesof economic processes to locally specific conditions.

26. See Sivakumar and Sivakumar [1979; 1993; 1996], Ludden [1985], Tirumalai [1981; 1987]and Murton [1979] for the role of irrigation management in the formation of cultural andpolitical institutions in South Indian history.

27. For an interesting – but brief – discussion of the organizational implications of a demand curvewhich lies above the supply curve, see Menard [1989].

28. See Sivakumar and Sivakumar [1993; 1996] for a more detailed discussion of labour marketsand income distribution in rural South India during the late eighteenth century.

29. Throughout the history of South Indian agriculture, entitlements to land were often granted byrulers to those who were prepared to risk harnessing and managing irrigation from existing


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chayanov and marxism

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