Economic sociology: An Introduction

 

Gaurang Sahay

Meaning

Economic sociology can be defined simply as the sociological perspective applied to economic phenomena. To quote Neil J. Smelser and Richard Swedberg, ‘Economic sociology is the application of the general frame of reference, variables, concepts, methods and explanatory models of sociology to those complex economic activities such as production, distribution, exchange, consumption of goods and services and so on’ (Smelser and Swedberg 2005: 4). Economic sociology studies both the social effects and the social causes of various economic phenomena.

Economic sociology is particularly attentive to the relationships between economic activity and the society or socio-cultural institutions that contextualize and condition economic activity. Although traditional economic analysis takes the atomistic individual as its starting point, economic sociology generally begins with groups, or whole societies, which it views as existing independently but constituting the individual. When economic sociologists do focus on individuals, it is generally to examine the ways in which their interests, beliefs, and motivations are mutually constituted through the interactions between them. The focus on economic action as social—that is, as oriented toward other people—allows economic sociologists to consider power, culture, organizations, and institutions as being central to an economy.

 

Economic sociology is a branch of sociology that incorporates insights from economics, behavioral psychology, economic anthropology, and cultural anthropology. Structural and cultural approaches largely characterize the studies conducted in the field of economy, with the former associated with networks, institutions, and social organization; the latter with rituals, symbols, cognitive frameworks, and narratives. Economic sociologists study how social networks and relationships affect economic actions, such as the provision of loans, the acquisition of a job, and the successful construction of deals. They examine how prices are set, why some pricing schemes that do not seem rational are instead understandable and predictable, and how markets are incorporated into social life, and vice versa.

The themes of power and culture, as well as the focus on organizations and institutions, in economic sociology have naturally led its practitioners to examine also the relationship between the state and the economy. Economic sociology has generally asserted that the state and the economy exist in a symbiotic relationship: the state depends on the economy for revenue, and the economy depends on the state for the rules and regulations. This runs counter to much of the economic literature on markets in economics, which tends to portray markets and states as existing in opposition to one another. The symbiotic relationships between economies, the state, and civil society are what economic sociologists mean when they say that economies are embedded in social and political structures. The relationship between the state and the economy has been an area of inquiry central to economic sociology since its genesis.

Mainstream Economics and Economic Sociology Compared

The Concept of the Actor

The analytic starting point of economics is the individual; the analytic starting points of economic sociology are typically groups, institutions, and society. In economics, there is an individualistic approach resulting in methodological individualism that finds individual as an indenedent ultimate actor. By contrast, in sociology individual is a socially constructed actor as “actor-in-interaction,” or “actor-in-society.” Often, moreover, sociologists take the group and the social-structural levels as phenomena sui generis, without reference to the individual actor. In Economy and Society, Weber constructed his whole sociology on the basis of individual actions. But these actions are of interest to the sociologist only insofar as they are social actions or “take account of the behavior of other individuals and thereby are oriented in their course” (Weber [1922] 1978, 4). This formulation underscores a second difference between economics and economic sociology: the former generally assumes that actors are not connected to one another; the latter assumes that actors are linked with and influence one another.

 

The Concept of Economic Action

In economics the actor is assumed to have a given and stable set of preferences and supposed to choose that alternative line of action which maximizes utility. In economic theory, this is considered economic rational action. In sociology, by contrast, economic action can be either rational, traditional, or affectual (Weber [1922] 1978, 24–26, 63–68). Economics give no place to tradition or affectual economic action.

Another difference between microeconomics and economic sociology in this context concerns the scope of rational action. The economics traditionally identifies rational action with the efficient use of scarce resources. The sociologist’s view is, once again, broader. Weber referred to the conventional maximization of utility as formal rationality. In addition, however, he identified substantive rationality, which refers to maximisation or allocation within the guidelines of other principles, such as communal loyalties or sacred values. A further difference lies in the fact that economists regard rationality as an independent assumption, whereas most sociologists regard it as a variable (see Stinchcombe 1986, 5–6). For one thing, the actions of some individuals or groups may be more rational than others (cf. Akerlof 1990). Sociologists tend to regard rationality as a phenomenon to be explained, not assumed. Weber dedicated much of his economic sociology to specifying the social conditions under which formal rationality is possible, and Parsons (1940, 1954) argued that economic rationality was a system of norms—not a psychological universal.

Another difference emerges in the status of meaning in economic action. Economists tend to regard the meaning of economic action as derivable from the relation between given tastes or preferences, on the one hand, and the prices and quantities of goods and services and relations among them, on the other. Weber’s conceptualization has a different flavor: “the definition of economic action [in sociology] must . . . bring out the fact that all ‘economic’ processes and objects are characterized as such entirely by the meaning they have for human action” ([1922] 1978, 64). Meanings are historically constructed and must be investigated empirically, and are not simply to be derived from assumptions and external circumstances.

Finally, sociologists tend to give a broader and more salient place to the dimension of power in economic action. Weber ([1922] 1978, 67) insisted that “[it] is essential to include the criterion of power of control and disposal (Verfügungsgewalt) in the sociological concept of economic action,” adding that this applies especially in the capitalist economy. By contrast, microeconomics has tended to regard economic action as an exchange among equals, and has thus had difficulty in incorporating the power dimension (Galbraith 1973, 1984). The economist’s conception of power is typically narrower than the sociologist’s notion of economic power, which includes its exercise in societal (especially political and class), as well as market, contexts. Sociologists have analyzed and debated the issue of the political implications of wealth in equality and the extent to which corporate leaders constitute a a part of “power elite” in the whole of society (e.g., Mills 1956; Dahl 1958; Domhoff and Dye 1987; Keister 2000).

Constraints on Economic Action

In mainstream economics, actions are constrained by tastes and by the scarcity of resources. Once these are known, it is in principle possible to predict the actor’s behavior, since he or she will always try to maximize utility or profit. The active influence of other persons and groups, as well as the influence of institutional structures, is ignored considering them insignificant. Knight codified this in the following way: “Every member of society is to act as an individual only, in entire independence of all other persons” ([1921] 1985, 78). Sociologists take such influences directly into account in the analysis of economic action. Other actors facilitate, deflect, and constrain individuals’ action even in the market situation. Cultural meanings also affect choices of an actor. In Hindu society it is difficult to persuade people to buy cow meat for food, even though their meat isas nutritious and cheaper than other kinds. Moreover, a person’s position in the social structure (caste system) conditions his or her economic choices and activity.

The Economy in Relation to Society

The main foci for the mainstream economist are the economy and economic institutions or phenomena. To a large extent, the remainder of society lies beyond the scope of economics. In economics societal parameters are frozen by assumption, and thus are omitted from the analysis. In recent times economists have turned to the analysis of why institutions arise and persist, especially in the new institutional economics and game theory. Nevertheless, the contrast with economic sociology remains. When economists talk about institutions, norms, and the like, their vocabulary is identical to that of sociologists, but they often mean something quite different. It is still very common, for example, for economists to treat the economic arena as lacking norms and institutions. The latter only emerge when markets cannot be constructed or when traditional rational choice analysis fails. Economic sociology, on the other hand, has always regarded the economic process as an organic part of society. As a consequence, economic sociology has usually concentrated on three main lines of inquiry: (1) the sociological analysis of economic process; (2) the analysis of the connections and interactions between the economy and the rest of society; and (3) the study of changes in the institutional and cultural parameters that constitute the economy’s societal context.

Goals of Analysis

Both economists and sociologists try to understand and explain economic phenomena, however, different emphases emerge. Economists tend to be critical of descriptions and anything which is atheoretical. They stress the importance of formalisation and prediction. Sociologists, by contrast, are hardly interested in formal predictions, and often find sensitive and telling descriptions essential for explanation. As a result of these differences, sociologists often criticize economists for generating formal and abstract models and ignoring empirical data, and economists reproach sociologists for their “post factum descriptive interpretations” (Merton1968, 147–49). Though these differences have become part of the professional cultures of economists and sociologists, it should be noted that the recent years have seen a new interest for model building and game theory among sociologists, and a new interest in culture and use of empirical material among economists too(e.g., Greif 1998, forthcoming; Swedberg 2001).

Models Employed

The emphasis on prediction constitutes one reason why mainstream economists place such high value on expressing hypotheses and models in mathematical form. Though the advantages of this formal theorizing are readily apparent, economists themselves have at times complained that it tends to become an end in itself (Wassily Leontief 1971, 1). When economists do turn to empirical data, they tend to rely mainly on those generated by economic processes themselves (for example, aggregated market behavior, stock exchange transactions, and official economic statistics gathered by governmental agencies). Small surveys are occasionally used, archival data are seldom consulted and ethnographic work is virtually nonexistent. By contrast, sociologists rely heavily on a great variety of methods, including analyses of census data, independent survey analyses, participant observation and fieldwork, and the analysis of qualitative historical and comparative data.

 

Intellectual Traditions

Unlike Economists, Sociologists not only rely on different intellectual traditions, but they also regard those traditions differently. Evidently influenced by the natural or physical science model of systematic accumulation of knowledge, economists have shown less interest than sociologists in study and exegesis of their classics. Correspondingly, economics reveals a sharp distinction between current economic theory and the history of economic thought. In sociology these two facets blend more closely. The classics are very much alive, and are often required reading in theory courses. Despite these differences, and despite the persisting gulf between the traditions of economics and economic sociology, some evidence of synthesis can be identified particularly in the study of inequality, poverty and labor markets, etc.

Economic Sociology and New Economic Sociology

There exists a large and rich tradition of economic sociology, which roughly begins around the turn of the twentieth century. This tradition has generated both important concepts and ideas and significant research results. Economic sociology has peaked twice since its birth: in 1890–1920 with the classical theorists (who were all interested in and wrote on the economy), and today, from the early 1980s onwards. A major thread in the tradition of economic sociology is that investigation must combine the analysis of economic interests with an analysis of social relations.

The classical economic sociologists like Karl Marx, Max Weber, Emile Durkheim and George Simmel were particularly concerned with socio-cultural and political roots or context of modernity. Modernity typically refers to a post-traditional, post-medieval historical period, one marked by the move from feudaiism (or agrarianism) toward capitalism, industriaiization, secularization, ratio- nalization, the nation-state and its constituent institutions and forms of surveillance.

New economic sociologists like Mark Granovetter focus on locating manifestly economic processes in their social contexts by identifying effects of social contexts on economic processes as well as searching for alternative explanations of economic phenomena. A review of recent work on firms, labor markets, households, and consumer markets shows new economic sociology has made valuable contributions to the explanation of economic processes.

Economic Sociology: Karl Marx And Max Weber

 

  Economic Sociology: Karl Marx And Max Weber

 

Gaurang Sahay

There exists a long and rich tradition of economic sociology or sociology of economic life, which roughly begins around the turn of the twentieth century. This tradition has generated both important conceptual ideas and significant research results, which we now present and set in perspective. Economic sociology has peaked twice since its birth: in 1890–1920 with the classical theorists (who were all interested in and wrote on the economy), and today, from the early 1980s onwards. A major thread in the tradition of economic sociology is that investigation must combine the analysis of economy or economic interests with an analysis of social structures or social relations.

 

Classical Economic Sociology

The first use of the term economic sociology seems to have been in 1879, when it appears in a work by a British economist W. Stanley Jevons. The term was taken over by the sociologists and appears, for example, in the works of Durkheim and Weber during the years 1890–1920 (sociologie économique, Wirtschaftssoziologie). It is also during these decades that classical economic sociology is born, as exemplified by such works as The Division of Labor in Society (1893) by Durkheim, The Philosophy of Money (1900) by Simmel, and Economy and Society (produced 1908–20) by Weber. These classics of economic sociology are remarkable for the following characteristics. First, Weber and others shared the sense that they were pioneers, building up a type of analysis that had not existed before. Second, they focused on the most fundamental questions of the field: What is the role of the economy in society? What is relationship between economy and society? How does the sociological analysis of the economy differ from that of the economists? What is an economic action? To this should be added that the classical sociologists were preoccupied with understanding capitalism and its impact on society—“the great transformation” that it had brought about.

In hindsight it is clear that several sociological works published before the 1890–1920 period in one way or another prefigure some of the insights of economic sociology. For example, the role of labor in society is emphasized in the work of Saint Simon (1760–1825), who also helped to popularize the term industrialism (cf. Saint-Simon 1964). The work of Alexis de Tocqueville (1805–1859) is full of sharp, sociological observations is something that most sociologists would agree on. That he also made contributions to economic sociology is, however, less known (Tocqueville [1835–40] 1945, [1856] 1955; cf. Swedberg 2003, 6–8). Of these various precursors we will concentrate here only on Karl Marx, a towering figure in nineteenth century thought.

Karl Marx

The task that confronts economic sociology today is to extract those aspects of Marx’s sociology that are useful in building economic sociology.

Marx made a study of all kinds of structure: economy, polity, culture and social structure believing that reality exists at the level of structure and structural relations rather than at the level of individuals. For him, different kinds of structure together constitute a social formation. Social formation is not an expressive totality of an essence such as economy but a ‘complex whole’ in which various levels or instances or structures – such as, economy, polity and ideology – are interrelated and relatively autonomous of each other. For Marx, structures and their elements are related to each other in both relatively autonomous and interdependent ways. The elements and levels of the structures and the relationship between them may be of different natures and weightings.

For Marx, economy has a sociological character because it consists of both relations of production and forces of production. Relations of productions denotes relations between people who participate in the process of production. Such people differentiate from each other in terms of classes. So, relations of productions denote differentiated positions occupied by different classes in the process of production. Forces of production denotes labour power, objects of labour, means of labour and knowledge, skills and other such expertise. Thus, class character of economy as well as the elements of knowledge, skills and other such expertise tell us that economy is not only material but has also a social character.

In Marxist framework one of the structures of ‘social formation’ always dominates the functioning of ‘social formation’. Althusser calls that structure ‘structure in dominance’ (Althusser, 1986). Dominant structure can be any structure – economy or polity or culture or ideology – depending on the situations. Dominant structure is identified not by counting the number of functions it performs in a ‘social formation’ but by finding out whether it performs functions of relations of production. As Godelier writes, “it is not enough for a single structure to assume several functions or any one function in order to be dominant but that it must necessarily take on the functions of relations of production” (Gldelier, 1977: 36). That is why, as Godelier further argues, kinship structure is the dominant structure in Inca social formation because it performs the functions of relations of production. It is the kinship structure that stratifies people in Inca social formation (Godelier, 1977).

Since, unless and until, a structure performs functions of relations of productions it does not become dominant one, Marx argues that economy plays the determinant role in the functioning of social formation. As Godelier argues, “the determinant role of the economy does not contradict the dominant role of a superstructure like kindhip, but is expressed through it” (Godelier, 1973: 366).

For Marx contradiction in a social formation that lead to a transformation in it is located not only in the economic structure but also in social, political and cultural structures. It is the combination of different kinds of contradictions located in different structures that lead to transformation in a social formation or replacement of one social formation by another social formation. To quote Althusser, “The ‘contradictions’ is inseparable from the total structure of the social body in which it is found, inseparable from its formal conditions of existence, and even from the instances it governs; it is radically affected by them, determining but also determined in one and the same movement, and determined by the various levels and instances of the social formation it animates; it might be called ‘overdetermined in its principle’ (Allthussser, 1986:101).

Marx’s point of departure is labor and production. People have to work in order to live, and this fact is universal (Marx [1867] 1906, 50). Material interests are correspondingly universal. Labor is social rather than individual in nature, since people have to cooperate in order to produce. Marx severely criticized economists for their conceptualisation of individual as isolated individual; and he himself spoke of “social individuals” (e.g., [1857–58] 1973, 84–85). The most important interests are also of a collective nature—what Marx calls “class interests.” These interests will, however, only be effective if people become aware that they belong to a certain class (“class for itself,” as opposed to “class in itself”; Marx [1852] 1950, 109). Marx severely criticized Adam Smith’s idea that individual interests merge and further the general interest of society (“the invisible hand”). Rather, according to Marx, classes typically oppress and fight each other with such ferocity that history is written with “letters of blood and fire” ([1867] 1906, 786). Bourgeois society is no exception on this score since it encourages “the most violent, mean and malignant passions of the human heart, the Furies of private interest” ([1867] 1906, 15). In various works Marx traced the history of the class struggle, from early times into the future. In a famous formulation from the 1850s, Marx states that at a certain stage the “relations of production” enter into conflict with “the forces of production,” with revolution and passage to a new “mode of production” as a result ([1859] 1970, 21). In Capital, Marx writes that he has laid bare “the economic law of motion of modern society” and that this law works “with iron necessity towards inevitable results” of revolutionary change ([1867] 1906, 13–14).

A positive feature of Marx’s approach is his insight into the extent to which people as a collective have been willing to fight for their material interests throughout history. He also contributed to understanding how large groups of people, with similar economic interests, under certain circumstances can unite and realize their interests.

Max Weber

Among the classics in economic sociology Max Weber (1864–1920) occupies a unique place. He laid its theoretical foundation and carried out empirical studies. The fact that he had worked as a professor of economics and consistently tried to understand the origin of modern capitalism was no doubt helpful in his efforts to build foundation of economic sociology.

Weber’s academic training was broad in nature. His two dissertations—one on medieval trading corporations and the other on the sale of land in early Rome— were relevant topics for understanding the rise of capitalism. Those works, in combination with a commissioned study of rural workers, earned him a position in economics in the early 1890s. In this capacity he taught economics but published mainly in economic history and in policy questions. Weber wrote, for example, voluminously on the new stock exchange legislation.

Toward the end of the 1890s Weber fell ill, and for the next 20 years he worked as a private scholar. In these years he produced his most celebrated study, The Protestant Ethic and the Spirit of Capitalism (1904–5), as well as studies of the ethics particularly economic ethics of the world religions. From the very beginning Weber set aside the topic of “economy and society” for himself. The work that today is known as Economy and Society by Weber consists of a mixture of material. In 1919–20 Weber also taught a course in economic history that resulted in a book General Economic History. Though primarily a work in economic history, it contains interesting material for the economic sociology.

Much of what Weber wrote in the area of economic sociology can be found in Collected Essays in the Sociology of Religion (1920–21) and Economy and Society (1922). The former contains a revised version of ‘The Protestant Ethic and the Spirit of Capitalism” (1904–5; revised 1920) and voluminous writings on the economic ethics of the Confucianism, Hinduism, Islam and Judaism and a few other texts. The material in Collected Essays concerns mainly the sociology of religion but is of great interest to economic sociology. The most influential study in Weberian economic sociology is The Protestant Ethic and the Spirit of Capitalism.

In the book Weber argues that the most defining feature of modern Western society is industrial capitalism that has been shaped by a thoroughgoing and all encompassing formal or instrumental rationality. The development of rationality in this form, as Weber argues, has happened due to the prior development within individuals of a certain highly peculiar kind of rational inner orientation which has been singularly caused by the Protestant ethic.

According to Max Weber, modern capitalism did not develop or could not have developed directly and ‘naturally’ through a gradual process of rationalization from earlier forms of economy. Instead, the development of modern capitalism required a radical breakthrough in the domain of attitudes and dispositions – a breakthrough that Weber attributes to the religious ideas of Reformation. The religious ideas of Reformation logical generated by M. Luther and J. Calvin led to the development of what Weber calls ‘worldly asceticism’ that resulted in the direction of unrelenting work and methodical self-control, a decisive impetus to the development of modern industrial capitalism.

In Protestant Ethic and Spirit of Capitalism, Weber traces the development of worldly asceticism to four conceptions of the Reformation doctrine:

1. Luther’s conception of calling: It granted full moral and religious dignity to ‘worldly’ activity. The holiest task was to demonstrate one’s faith through activity in ordinary social and economic settings.

2. The Calvinist conception of an absolutely transcendental deity: It made true mystical union with God inconceivable. Therefore, the believer had to think of himself as an active ‘tool of the divine will’, as an instrument serving to ‘increase the glory of God’ through intense, single minded, rational worldly activity (PESC: 113-14, ES: 546).

3. The Calvinist doctrine of the general abhorrence of all sensuous and emotional elements in culture and in religion: It puts a premium on strictly impersonal, radically individualistic, and thoroughly anti hedonistic activity (PESC: 105-06, 109, 224).

4. The central Calvinist conception of predestination: It made individual powerless to affect his salvation and equally powerless to know his predetermined fate. In response to this, Puritan pastors came to recommend intense, methodically controlled activity in a worldly calling as a means of ‘attaining certainty of one’s own election (PESC: 111), and they interpreted worldly economic success as a sign of God’s blessing, thus relieving the intolerable psychological uncertainty imposed by doctrine of predestination.

Thus, Weber presented worldly asceticism – the disposition to work intensely and methodically in a worldly calling – as the practical-psychological consequence of the theoretical doctrines of the Reformation that contributed significantly in building the tremendous cosmos of capitalist economy by placing premium on continuous work in a calling and the acceptance of the accumulation of wealth as a sign that one’s work had found favour in the sight of God; and more importantly contributing to the formation of a ‘specifically bourgeois’ economic ethic – to what Weber calls the ‘Spirit of Capitalism’ – and thereby to the ‘ascetic rationalization of the whole economic life’.

While he was writing The Protestant Ethic and Spirit of Capitalism Weber published an essay, “‘Objectivity’ in Social Science and Social Policy,” that summarized his theoretical views on economic sociology. In this work he argued that the science of economics should be broad and umbrella-like (Weber [1904] 1949, 64–65). It should include not only economic theory but also and economic sociology. Weber also proposes that economic analysis should cover not only “economic phenomena” but also “economically relevant phenomena” and “economically conditioned phenomena” (64–65). Economic phenomena consist of economic norms and institutions, often deliberately created for economic ends—for example, banks and stock exchanges. Economically relevant phenomena are noneconomic phenomena that under certain circumstances may have an impact on economic phenomena, as in the case of ascetic Protestantism. Economically conditioned phenomena are those that to some extent are influenced by economic phenomena. The type of religion that a group feels affinity for is, for example, partly dependent on the kind of work that its members do. While economic theory can only handle pure economic phenomena (in their rational version), economic history and economic sociology can deal with all three categories of phenomena.

A somewhat different approach can be found in Economy and Society. The first chapter of this work contains a general sociological analysis. Two concepts are important building blocks: “social action” and “order”. In the former, “action,” defined as behavior invested with meaning, is qualified as “social” if it is oriented to some other actor. An “order” is roughly equivalent to an institution, and it comes into being when social actions are repeated over a period, regarded as objective, and surrounded by various sanctions. Economists study pure economic action, which is action exclusively driven by economic interests (or “desire for utilities,” in Weber’s formulation; [1922] 1978, 63). Economic sociologists, however, study social economic action, which is driven not only by economic interest but also by tradition and emotions; furthermore, it is always oriented to some actor(s).

If one disregards single isolated actions, Weber says, and instead focuses on empirical uniformities, it is possible to distinguish three different types: those inspired by “convention,” by “custom” (including “habit”), and by “interest” ([1922] 1978, 29–36). Most uniform types of action presumably consist of a mixture of all three. Actions that are “determined by interest” are defined by Weber as instrumental in nature and oriented to identical expectations. An example would be the modern market, where each actor is instrumentally rational and counts on everybody else to be so as well. Weber emphasized that interests are always subjectively perceived; no “objective” interests exist beyond the individual actor. In a typical sentence Weber speaks of “[the] interests of the actors as they themselves are aware of them” ([1922] 1978, 30). He also notes that when several individuals behave in an instrumental manner in relation to their individual interests, the typical result is collective patterns of behavior that are considerably more stable than those driven by norms imposed by an authority. It is, for example, very difficult to make people do something economic that goes against the individual’s interest. A sketch of Weber’s economic sociology in Economy and Society yields the following main points. Economic actions of two actors who are oriented to one another constitute an economic relationship. These relationships can take various expressions, including conflict, competition, and power. If two or more actors are held together by a sense of belonging, their relationship is “communal”; and if they are held together by interest, then their relationship is “associative” (Weber [1922] 1978, 38–43). Economic relationships (as all social relationships) can also be open or closed. Property represents a special form of closed economic relationship.

Economic organizations constitute another important form of closed economic relationships. Some of these organizations are purely economic, while others have some subordinate economic goals or have as their main task the regulation of economic affairs. A trade union is an example. Weber attaches great importance to the role in capitalism of the firm, which he sees as the locus of entrepreneurial activity and as a revolutionary force.

A market, like many other economic phenomena, is centered around a conflict of interests—in this case between sellers and buyers (Weber [1922] 1978, 635–40). A market involves both exchange and competition. Competitors must first fight out who will be the final seller and the final buyer (“competition struggle”); and only when this struggle has been settled is the scene set for the exchange itself (“exchange struggle”). Only rational capitalism is centered around the modern type of market (Weber [1922] 1978, 164–66). In so-called political capitalism the key to profit making is rather the state or the political power that grants some favor, supplies protection, or the like. Traditional commercial capitalism consists of small-scale trading, in money or merchandise. Rational capitalism has emerged only in the West.

A V Chayanov’s Theory of Peasant Economy

 

A V Chayanov’s Theory of Peasant Economy

Gaurang Sahay

Probably the most sophisticated and best documented studies of the theory and problems of peasant economy in the half century from 1880 to 1930 were written by Russians. The masterpiece of this set of studies appears to be Peasant Farm Organisation by A. V. Chayanov which was published in Moscow in 1925. At the time Chayanov wrote it he held the leading chair of agricultural economics in an institution nearby Moscow. An earlier and shorter version of the book was a paper The Theory of Peasant Economy by Chayanov which was published in 2023 in Berlin.

As a cultivated man, Chayanov was not only interested in diverse realms of economics or social science or Western philosophy, but was also involved in art, literature, and history. Under various pseudonyms, he wrote plays and novels in which are reflected his open and tolerant mind. Though Chayanov held a prestigious academic position even after the Bolshevik revolution in Russia , his views and works were not liked by the Soviet system. Therefore, he was arrested and put behind the bar in 1930 by the Stalinist regime. He never came out of prison.

Though Chavanov was a prolific writer. His 60 books and brochures and a number of articles represent the culmination of a thought on agrarian economy. After his arrest, Chayanov’s name and works slipped into obscurity in everywhere including Europe and America. He was rarely cited even in his native country and were not translated in English or any European language. Only in Japan a couple of his major works translated by Professor Isobe in japanese language. No body, in fact, in academia was aware of Chayanov works till Daniel Thorner, Basile Kerblay, and R.E.F. Smith published A. V. Chayanov on the Theory of Peasant Economy which contains an essay by Thorner, ‘Chayanov's Concept of Peasant Economy,’ a biographical essay, and English translations of two of Chayanov's important works: a paper, ‘On the Theory of Non-Capitalist Economic Systems,’ and a book, Peasant Farm Organization. The editors included a bibliography of Chayanov's works and Kerblay's chronicle of Chayanov's life from his appointment to an agricultural institute near Moscow in 1913 at the age of twenty-five, through his work with the "organization and production" school of Russian agricultural economics, to his arrest in 1930 by Stalin's agents.

Since the translation of his main works into English in 1966 there has been an upsurge of interest in Chayanov's ideas. Sahlins has discussed them in two influential publications (1971, 1972), and numerous anthropologists (e.g., Minge-Kalman 1977, Durrenberger 1980, Lewis 1981, Stier 1982) and other social scientists (e.g., Harrison 1975, Hunt 1979, Patnaik 1979) have tested the theory in different locales. These writers, however, have differed greatly in their interpretations and tests of Chayanov's ideas.

Chayanov's theory of peasant economy is based on detailed studies of Russian farms carried out by Chayanov and others from 1870 to 1920. Chayanov contended that 90% or more of the farms in Russia at that time used only unpaid family labor and thought his model stood for the most typical farm in what was one of the largest peasant countries in the world.

While Chayanov had access to perhaps the most massive collection of data on any peasant economy, he had only crude analytic tools. Correlation analysis was just being developed, and he used it only sparingly in "Peasant Farm Organization." There were no computers or sophisticated statistical techniques available, but he was able to illustrate many relationships by adroit manipulation of tables.

In the introduction to "Peasant Farm Organization," Chayanov lists a set of anomalies which arise from the Marxist and neoclassical analyses of peasant economy, and proposes instead a different analytical scheme. Chayanov's purpose was threefold: to develop a theory that would correctly predict household economic action; to develop an account that would correctly describe rural household economic action; and to use these insights for policy formation.

Chayanov's thesis on the peasant economy consists of five major data based theoretical statements.

Peasant farms are family labour farm

Investigation showed that the bulk of peasant farms were strictly (extended) family operations. In Chayanov's terminology, the "family labor farm," which employed no, or very occasionally, non-family labor, was the typical form of peasant enterprise. He argues that standard economics relies on a set of categories and relations such as capital, wages, interest, and rent which mutually determine one another, and if one of the elements of this set is absent, the analytic system predicated on it is not appropriate. From the observation that Russian peasants typically did not employ wage workers, he concludes that standard economic theory does not apply, that it is not possible to describe peasant farmers as being engaged in business (Chayanov 1966).

The ration of consumers to workers determines the intensity of family labour application and total volume of production

The intensity of family labor application (i.e., working days per year per family member) was found to be directly related to the ratio of consumers to workers in the family (measured in adult male equivalents). According to Chayanov, the number of consumers (C) and workers (W) in a peasant household strongly affects its total volume of production (P). The number of consumers influences the minimal output that a household must produce, while the consumer-worker ratio influences the amount each household produces beyond a socially defined "consumption standard." Chayanov noted (1966, 105-6) that this socially defined "consumption standard" varies from community to community but was not explicit about what determines the consumption standard in any particular community. It seems reasonable to assume, however, that in most peasant communities, the "consumption standard" is somewhat higher than the standard of living of the poorest inhabitants.

The Equuilibrium of family demand satisfaction and drudgery of labour determines further the intensity of family labour application

The degree to which peasant workers exert themselves is further determined by the equilibrium of family demand satisfaction and drudgery of labor (Chayanov 1966). The notion of equilibrium of family demand satisfaction and drudgery of labor is the crux of Chayanov's system, and one of his major contributions. The idea is that each additional unit of product is progessively less valued, while each additional unit of labor is progressively more burdensome and loathed. Chayanov states the relationship thus:

. . .the subjective evaluation of the values obtained by this marginal labor will depend on the extent of its marginal utility for the farm family. But since marginal utility falls with growth of the total sum of values that become available to the subject running the farm, there comes a moment at a certain level of rising labor income when the drudgery of the marginal labor expenditure will equal the subjective evaluation of the marginal utility of the sum obtained by this labor.

The output of the work on the labor farm will remain at this point of natural equilibrium, since any further increase in labor expenditure will be subjectively disadvantageous. Thus, any labor farm has a natural limit to its output, determined by the proportions between intensity of annual family labor and degree of satisfaction of its demands (1966:81-82).

Chayanov illustrates the concept with graphs of two curves: one, declining marginal utility for further goods; the other, increasing marginal disutility of additional labor.

The intersection of the two curves defines the equilibrium point.

Peasants will increase labor inputs if they believe they will gain more outputs which can be devoted to investment or consumption, but not past the point where the increase is outweighed by increasing drudgery (Thorner 1966).

Furthermore, the conditions of production, market situation, and location of the farm relative to markets all interact to determine judgments of drudgery or productivity of labour

The conditions of production, market situation, and location of the farm relative to markets all interact to determine judgments of drudgery or productivity of labor. Family size and composition interact with other sources of demand to determine the evaluations of needs (Chayanov 1966). If labor productivity increases and drudgery decreases, there is more product per unit of labor. The more consumers each worker must support, the more significant is each unit of income for consumption (Chayanov 1966). Chayanov examined the variables that affect the positions of the utility and drudgery curves which he hypothesized as motivations for intensity of labor inputs. Anything that affects one of these curves also affects the location of the equilibrium point and therefore the degree of labor intensity.

Assuming that technology and agricultural methods, soil fertility, and other factors such as irrigation works are equal, Chayanov supposes that the assessment of drudgery will be equal for all workers, since their productivity will be equal. Then one major factor that will influence the curve of marginal utility is the ratio of consumers to workers, i.e., the number of consumer units each worker must support.

Chayanov (1966: 108-109) does not expect peasants to continue farming if they can achieve better equilibrium points at higher levels of consumption by not farming.

Economic differentiation among the peasantry, particularly by farm size, was more a measure of relative family size and composition than of differential economic success and positions

Economic differentiation among the peasantry, particularly by farm size, was more a measure of relative family size and composition than of differential economic success, that is, farm size tended to follow a cycle concurrent with the peasant family life cycle, increasing as family members matured into workers and declining as the family aged and disintegrated with the formation of new families. Economic stratification due to these causes was called by Chayanov a case of "demographic differentiation," and he distinguished it from differentiation attributed by Marxists and neoclassicists alike to a persistent and cumulative process of petty capitalist accumulation.

The evidence indicated that the family labour farm could survive, and in some cases prevail, in competition with commercial farm enterprises.

In Chayanov's view these dimensions of peasant economy were inconsistent with the hypothesis that peasants manage their farms so as to maximize profits as rational petty capitalists. He thought that he had found the theoretical key to the peculiarities of peasant economic activity in the fact that the family labor farm did not contract wage payments with its own members. Instead, the family as a whole was a residual claimant to the farm's proceeds. Since wages were indeterminant, he argued, so too, must be profits and economic rent (where the family worked its own land). On the premise that the family could not maximize what it could not measure, Chayanov reasoned that the absence of these capitalist categories precluded profit as the motivation and guide to peasant economic behavior.

Unlike capitalist enterprise, the peasant family worked for a living, not for profit. In other words, peasants are in no way involved in business. To quote Chayanov:

. . .We take the motivation of the peasant's economic activity not as that of an entrepreneur who as a result of investment of his capital receives the difference between gross income and production overheads, but rather as the motivation of the worker on a peculiar piece-rate system which allows him alone to determine the time and intensity of his work. The whole originality of our theory of peasant farm organization is, in essence, included in this modest prerequisite, since all other conclusions and constructions follow in strict logic from this premise and bind all the empirical material into a fairly harmonious system (1966:42).

Chayanov's theory of the peasant economy is simply the formal expression of this conception in what are essentially neoclassical terms: equilibrium of the family labor farm is depicted as the outcome of a subjective balancing of a marginal increment in family consumption against a marginal change in the "drudgery" of family labor application. The degree of "self-exploitation" of family labor was determined, therefore, not by capitalist criteria but by a hedonic calculus.

To consider peasants businessmen and workers is to create a fictional dualism which Chayanov was not willing to accept (1966:42). This follows from the notion that the interests of the employer and the wage worker are so antithetical that they cannot be combined in one person.

It might be argued that Chayanov was only dealing with one part of the large Russian peasantry, that which used no hired labor, and that this confines his analysis to this class of peasants. Chayanov clearly intends his ideas to characterize peasantries in India, China, and "most non-European and many European states" (1966: 1). Thorner obviously has the same idea when he mentions Brazil, Mexico, Turkey, Nigeria, India, and Indonesia (1966); Chayanov intended no geographic limitation.

To recapitulate briefly,

• Peasant household economies use no wages and therefore none of the categories of standard economic theory of capitalist economy apply.

• The annual product minus outlays is the labor product, or net product, which is indivisible into categories of standard economic theory.

• The number of workers, consumers, and other demands on value created (e.g., payments on machinery, interest on loans, repayment of loans, rents, etc.) jointly determine the location of the curve of marginal utility.

• The kinds of tools, natural conditions such as soil fertility, improvements to land, price of products, distance to markets, possibilities of off-farm work, and scheduling conflicts all jointly determine productivity of labor, which in turn determines the position of the curve of drudgery.

• The locations of these two curves relative to each other determine the point of equilibrium at which labor ceases, which in turn determines the volume of the net product or labor product.

Some of the problems of interpreting of Chayanov's work may be consequences of unfortunate terminology. "Exploitation," for instance, has several meanings, as Roseberry (1976) points out, but the technical meaning of the term is simply "value appropriated from someone who produced it by someone who did not." In any of its senses, it is just as contradictory to speak of "self-exploitation" as it is to assert the fiction that peasants are at the same time landowners renting land to themselves, and capitalists hiring their own labor for imputed wages; by self-exploitation, Chayanov simply means level of effort (Chayanov 1966).

The potential of Chayanov's analysis has hardly begun to be developed. He formulated a crude analysis of Russian peasant economics several decades ago, and recent uses of his ideas have been used by scholars like Godelier (1972) and Sahlins (1971). If we take Chayanov's paradigm seriously and develop it from the point where he left it when he was arrested, we can address a series of evolutionary, prehistoric, historic, ethnographic, and economic questions from the perspective of a unified theory.

In Soviet Russia of the 1920s, Chayanov's theory presented a direct challenge to and an unmistakable contradiction of the accepted Marxist conception of the peasantry, and it raised a doctrinal dispute with immediate policy consequences. If, as Chayanov alleged, the mass of peasant farms were not incipient capitalist enterprises, then the peasant economy could not be fitted into Marx's general evolutionary scheme as an antecedent stage of capitalist development. On the contrary, Chayanov's theory lent support to the worst kind of heretical doctrine: that the peasantry might have both social justification and the economic capability to coexist with socialism as it had done with capitalism. If so, the peasantry formed an economic category in and of itself. That Soviet Marxists found Chayanov's theory of the peasant economy static, apologetic, and subjective is no surprise.

Karl Kautsky on The Agrarian Question

Karl Kautsky on The Agrarian Question 

Gaurang Sahay

 

The Theoretical discussion on the agrarian question initiated by F. Engels and the Social Democratic Party of Germany (SPD) at the Breslau Congress in 1995 resulted in Kautsky’s Die Agrarfrage (The Agrarian Question) which is deservedly recognized as a Marxist classic. Die Agrarfrage appeared in 1899 (4 years after the Breslau Congress ) and more are less at the same time as the other Marxist classic, Lenin’s Development of Capitalism in Russia.

Die Agrarfrage: a political text in non-polemical style

Though Die Agrarfrage appeared after a heated controversy around the agrarian programme and various issues related to agriculture, Kautsky left out any mention of his Social Democratic opponents in the book. The preface and part II of the book do refer to the Breslau congress but only in passing. Therefore, one can characterize Die Agrarfrage as a polemical book written in a non-polemical style. It was the non-polemical presentation of the book which increased its greatness, and many hail it as volume IV of Capital.

Two forms of discourses on agriculture

Kautsky distinguishes between two forms of discourses on agriculture: the analysis of specific situations and of tendencies. For him the former is essential for formulating agrarian programmes and political strategies while the later is wider in scope. The task of a theorist, according to Kautsky, is to look for general tendencies of development in agriculture. Die Agrarfrage is primarily a theoretical book and it is subtitled as ‘A Review of Tendencies of Modern Agriculture’. In this respect, it is quite different from Lenin’s ‘Development of Capitalism in Russia’ which is a concrete analysis of concrete specific situations. Kautsky goes on to argue that though the tendencies of development in agriculture are the same in all capitalist countries, the form in which they are realized may vary from one country or region to another. The explanations for variations in the form of realization of tendencies have to be looked for in factors such as differences in geographical location, climatic factors, historical conditions and the balance of political forces between different classes.

Industry not agriculture generates preconditions for transition to socialism

But had the book confined itself to doing just that it would not have provoked the controversy which it did. Kautsky argued in the book that it was industrial economy which would generate preconditions for transition to socialism. It was this claim which made the book controversial and it rested on two types of arguments. First, the validity of political calculations does not depend on each sector of the economy. Second, the path of development taken by agriculture is of limited significance in the overall context. For not only is industry the leading sector of the economy, its relative importance would continue increasing over time.

Natural economy: the starting point of Kautsky’s analysis

The starting point of Kautsky’s analysis is not capitalist agriculture, with whose tendencies of evolution he is principally concerned with, but the self-sufficient agricultural economy, grouped under a wider category termed natural economy. A unit of production if regarded as self-sufficient when it itself produces what it consumes. Self-sufficiency confers ‘immortality’ on units of production and social organizations because they themselves reproduce the conditions of production, barring natural calamities and disasters.

A natural economy is the one in which markets for goods and, naturally, also for labour is absent – precisely the features of a capitalist economy. Market relationships not only spin a web of personal interrelationships but also corrode pre-capitalist relationships and organisations and lead to their replacement by capitalist relations and organisations. Kautsky starts with the notion of natural economy to put market relationships at the centre of his analysis of the transformation of pre-capitalist into capitalist economy (market relationships) and accordingly to bring out particular features of capitalism in agriculture.

Agriculture follows same path of development: industrialisation of agriculture, proletarianisation

Nevertheless, for Kautsky, the path of development of agriculture does not diverge from that taken by industry. There is in agriculture, as in industry, a steady extension of capitalist production, proletarianisation and even an increasing concentration of means of production including land. But these processes take a form different in agriculture from that in industry. The extension of capitalist production in agriculture, for example, does not take the form of an extension in the area occupied by large capitalist farms – as it does in industry – but rather a proliferation in the range of activities, including the manufacturing activities like the distillation of alcohol and sugar refining, carried out by large farms. He terms this process ‘industrialisation of agriculture’ and regards it as one of the most important idea of Die Agrarfrage.

Similarly the process of proletarianisation takes a specific form in agriculture. Unlike in industry it does not necessarily take the form of the dispossession of labourers from means of production. In other words, proletarianisation in agriculture is not necessarily coupled with the disappearance of the units of production organized along non-capitalist lines – peasant farms. For Kautsky, the proletarianisation of the peasantry usually takes the form of peasant households not possessing enough land to sustain themselves and thus being forced to sell their labour. For Kautsky, a proletarianised peasant household is characterized by the following two features: it sells labour rather than commodities and the cultivation of land is just a household activity. Therefore, the relation between capitalist and peasant farms is not of competition as of complementarity. The latter sells labour to the former rather than that both types of farms sell identical or similar agricultural commodities and thus competing against each other. The nature of the relationship is of great significance because it implies the absence of market competition by which, as Marx and Engels assumed, capitalist organisations destroy pre-capitalist organisations of production. Thus, in effect, what Kautsky ends up doing is separating the process of proletarianisation from the process of destruction of pre-capitalist organisations and their replacement by capitalist organisations of production.

Peasant proletariat different from industrial proletariat

Not only does the process of proletarianisation as conceived by Kautsky leaves open the possibility of a peaceful coexistence of capitalist with peasant farms, but also the ‘peasant proletariat’ which it creates is not on a par with the industrial proletariat. The ‘peasant proletariat’, unlike the industrial proletariat, is very much interested in preserving the private ownership of means of production particularly land in any situation. Kautsky recognizes this in Die Agrarfrage when he points to the two different personae of the small peasantry: sellers of labour and owners of land. Now the end result of the argument is that though one can speak of the process of proletarianisation taking place in agriculture; one cannot equate with it the effects (either economic or political) which Marx and Marxists have traditionally associated with the process of proletarianisation, one of them is the collectivization of means of production in socialism.

Concentration of property in land but without the replacement of small farms by large farms

The concentration of property in land, according to Kautsky, happens despite the fact that there is no tendency for large farms to replace small farms. Kautsky’s demonstrates this by making a distinction between the concentration of titles (either juridical or effective) to landed property and concentration in the sense of an increase in the proportion of total land area occupied by large farms, and he argues that here the concentration of property in land is concerned with the former rather than the latter. He says that in Germany with the extension of mortgage credit advanced by a handful of banks the proportion of mortgaged land in the total has steadily increased, and accordingly a concentration of titles to landed property has happened in the name of few banks. After separating the two processes – concentration of ownership in land and increase in the size of land – Kautsky opines that the concentration of landed property would make the task of nationalizing land, an essential component of any socialist transformation of agriculture, easier because that would require the nationalsiation of only a handful of mortgage banks. The concentration of landed property thus leaves open the problem of consolidating small farms into large socially owned farms and therefore it does not create all the conditions for transition to socialist units of production.

The important feature of Kautsky’s analysis is not the argument that there is no discernible tendency for large farms to replace small farms but the fact that he separates the question of survival of different types of organisation of production from their relative efficiency. Kautsky always remained committed to the position that large farms (synonymous with capitalist farms) are more efficient than small farms or peasant farms. That the latter survive because of factors specific to agriculture: the finiteness of land, the lack of a complete separation between the household and the farm and the practice of granting the use of a strip of land in lieu of money wages.

Relative technical efficiency of large and small farms is only relevant in the context of capitalism

Under feudalism, Kautsky points out, the methods of cultivation used on large estates are no different from those on small peasant farms. For the former are cultivated by the very peasants who cultivate the latter and with the help of the same tools that they employ on their own farms. But in contrast, he goes on to argue that the methods used on large capitalist farms and on small peasant farms are often not the same. The former, for example, may be more mechanized and better informed about agronomy than the latter. The implication of this argument is that controversy concerning the relative technical efficiency of large and small farms is only relevant in the context of capitalism, and that it is the implanting of capitalism in agriculture which creates the contrast between the farms of different sizes.

The superiority of large over small farms

Kautsky does not just assume but in fact demonstrates the superiority of large over small farms. The demonstration relies on a number of distinct types of arguments. First, there are the arguments which rely on the indivisibility of agricultural machines. The superiority of large farms lies in the more intensive use of machines and since the machines are indivisible they cannot be used on small farms. Second, the larger the size the greater the possibility of specialisation of labour, a classical explanation of the beneficent effect of large scale production. Then, finally, the superiority of large farms lies in the fact that they find it easier to obtain credit and a better price for their produce.

How do small farms manage to survive?

However, Kautsky’s insistence that large farms are more efficient than small farms and the latter cannot overcome their disadvantages raises for him the question: how do small farms manage to survive? It is argued that small farms mange to survive through very hard work and meager consumption. That is why small peasants, the argument continues, are often worse off than agricultural wage labourers. They may be efficient in some technical sense but that they are wretched.

Survival and even the proliferation of small peasant farms are related with the peculiar characteristics of agriculture

One of the main arguments of Die Agrarfrage is that the survival and even the proliferation of small peasant farms have much to do with the peculiar characteristics of agriculture as a branch of production. Besides its heavy dependence on climatic and other natural factors, the peculiarities of agriculture have much to do with the special features of land as a factor of production such as land as a factor of production is non-extendability or the area of cultivated land cannot be increased significantly, location specific or immovability of agricultural land, system of land inheritance and parcellisation of land.

The systems of inheritance which establish a connection between the past and present distribution of land automatically assume a special importance in agriculture because of the relatively limited degree of freedom that there is for changing the distribution of agricultural land. It is relevant to take into account that the formation of joint stock companies in industry and commerce has more or less completely eliminated the influence of inheritance on the structure of companies, something which has not happened on a significant scale in agriculture. What the inheritance of land does, according to Kautsky, is to select individuals for the possession of land not on the basis of their suitability to agriculture but on the basis of the accident of their birth.

The systems of inheritance which divide up the land affect the whole spectrum of the size distribution and in the main what they do is to shift the size distribution towards the lower end. This in terms of Kautsky’s analysis has two effects: a progressive proletarianisation of the peasantry and, second, the proliferation of farms beyond the level needed to sustain a rational cultivation of land. In all the systems of inheritance would freeze the top end of the distribution and lengthen the tail at the expenses of medium sized farms. Given such a system of inheritance and private property in land, the parcellisation of land is much inevitable than its centralization. In addition, the immovable feature of land also makes it difficult to create a large farm out of a number of small ones.

The size of the farm is just one out of a number of distinct axes along which the differentiation of agriculture under capitalism takes place

The incidence of capitalist relations and new agriculture technology does not just depend on the size of the farm. The implanting of capitalism in agriculture may create differences between the farms of different sizes but it also drives a wedge between farms situated in different regions and between farms with different cropping and ownership patterns.

Lessee-cultivation: the paradigm of capitalist agriculture

Kautsky takes lessee-cultivation to be the paradigm of capitalist agriculture. It was very common in England but not so common in Germany where mortgage banks are the real owners of agricultural land. The essential point of the argument is that the mortgage bank stands in the same relation to the ‘owner-cultivator’ as does the landlord to the lessee-cultivator.

Capitalist agriculture cannot develop independently of the existing pre-capitalist agriculture

The development of capitalist agriculture can only take two forms: either the internal transformation of pre-capitalist into capitalist farms or pre-capitalist farms ceding the land in their possession to capitalist agriculture. The details of the actual process of its development aside, the essential point is that capitalist agriculture cannot develop independently of the existing pre-capitalist agriculture.

Peasant farms limit the expansion of capitalist farming

In the case of small peasant farms, their internal transformation into capitalist farms is ruled out because the area at their disposal is too small to support a capitalist enterprise where labour as well as other means of production are imputed costs. Peasant farms by the mere fact of their existence limit the expansion of capitalist farming and thus competition from that source. Finally, peasant farming has a great capacity to adapt itself to market forces.

The change as a result of the development of capitalism takes the form less of a redistribution of land than of change in the composition of what farms of different sizes respectively produce and sell

Survival, however, does not mean the absence of change; it simply refers to the fact of the continued existence of small farms. Kautsky argues that the change as a result of the development of capitalism takes the form less of a redistribution of land than of change in the composition of what farms of different sizes respectively produce and sell, as well as relations between them. Small farms sell labour rather than commodities; and they are thus complementary to large farms which buy labour. This constitutes, for Kautsky, the process of proletarianisation of the peasantry, a process which we discussed earlier and which is premised on the parcellisation of land arising out of an increase in the population dependent on land. Large farms, on the other hand, branch out into ancillary activities like the brewing of alcohol and the refining of sugar; a process Kautsky termed the industrialization of agriculture.

The general question

This more or less finishes the coverage of notable arguments in the theoretical section of Die Agrarfrage. After this Kautsky raises some general questions: what form would the development of capitalist agriculture take, what will eventually happen to the peasantry and, finally, what actual form would the development of socialist agriculture take?

Latifundia: agents of the development of capitalist and the foundation of future socialist agriculture

The term ‘latifundia’ plays an important part in his answers to these questions. Latifudia in Kautsky’s sense are not a feudal relic but a modern development; an industrial and agricultural conglomerate. These, according to Kautsky, started to develop in the last quarter of the nineteenth century in the form of large estate owners acquiring more farms, usually not in order to enlarge the area of the parent farm but to undertake manufacturing activities like brewing and sugar refining. Thus a latifundium was not an integrated unit of production but instead, like a modern corporation, a unit of management and ownership composed of a number of units of production. The reasons for which Kautsky attaches are: first, by bringing a number of farms (covering a fairly large area) under one management they facilitate a rapid diffusion of rational methods of cultivation and lead to mechanization and the employment of specialized labour, in short the effects associated with the economies of scale; second, they bring about an integration of agriculture and industry. For Kautsky the modern latifundia are not only agents of the development of capitalist agriculture but also the foundation of future socialist agriculture. Though he does not spell it out explicitly, Kautsky does conceive of future socialist agriculture as consisting of one giant latifundium enveloping the whole of agriculture and enveloping a wide variety of industrial activities.

Concluding remarks

The peasantry, according to Kautsky’s prognosis, will dissolve itself. Incapable of matching the levels of income offered by industry and modern agriculture, it will shrink as a result of the desertion of the peasants themselves. The essential point is that Kautsky regards peasant agriculture as an obstacle of development of both capitalist and socialist agriculture. Peasant agriculture does not, according to Kautsky, play a positive part in the evolution of socialist agriculture. A socialist government, as conceived by Kautsky, will not expropriate the peasantry but wait for it to dissolve itself voluntarily.

In all, except on particular issues, Kautsky wanted Social Democracy to maintain a neutral but not an indifferent stance towards agriculture. Social Democracy, in his view, ought to be interested in the tendencies of the development of capitalist agriculture but it should not influence the course of that development. He wanted Social Democratic Party of Germany to be candid and recognize that in essence it was an urban and a proletarian party.

Karl Kautsky, The Agrarian Question, Two Volumes, Translated by Pete Burges, Introduction by H. Alavi and T. Shanin