The Theories of “Differential Optimums” and “Vertical Integration” and Their Implications for China

Abstract

Chayanov, outside of his theoretical analysis of how peasant households are distinctive for being at once a production and a consumption unit and the multiple implications of that fact, has made two other major theoretical contributions, one making clear that peasant economies observe the logic of “differential optimums” rather than the simple logic of economies of scale and the other having to do with the need for co-operatives for “vertical integration” of small peasant economies in order to preserve for the peasants more of the value of their products in the BIG MARKET. The former can be readily observed in the “new agriculture revolution” of the Chinese economy in the past few decades; the latter can be readily seen in the striking modernization of the “East Asian” (i.e., Japan, South Korea, and the Taiwan area) economies since 1945. China’s annual “Number One Documents” about agriculture of the past two decades have shown how the country first mistakenly tried to imitate the simple scale-economy logic of the United States and then shifted since 2018 toward a new emphasis on the peasants as the principal agents of agricultural development and peasant villages as the basic unit for agricultural co-ops. Those have been the basis for new advances as well as for reinterpretations and modifications of Chayanov’s two major theoretical visions.