The Early Twentieth Century

By comparison with the rest of the world the Russian School of economics in the nineteenth century was rather backward. In 1890, when Alfred Marshall’s Principles of Economics were published, a publication appeared in Russia, in which an attempt was made to create a so-called “neo-classical approach”, that is, to combine classi­cal value theory with marginal utility and marginal productivity theories.

Essays on the Theory of Labour Household (1912) by A.V. Chayanov has been undeservedly forgotten for a long time. In this work Chayanov attempted to produce a mathematical model of the labouring household. As an example he took the sepa­rate peasant family that exploited only the labour of its own members. Chayanov put forward two functions as determining the balance of the labouring household. Let x be the total income of the working family in roubles. Then the first function f(x), being a monotonously increasing function, indicates the drudgery entailed in the acquisition of a marginal rouble, while the second monotonously decreasing function φ(x) describes the value of marginal utility of these roubles (see Figure 2).

Chayanov’s idea was that as the amount of work increases, the subjective value of a marginal rouble will always decrease and the difficulty of its acquisition will always increase. Therefore, the plots of these functions will intersect at a single point x₁, reflecting

the equality f(x₁) = φ(x₁). This led him to an important conclusion that any labour house­hold has the natural limit of its production determined by a balance between the yearly labour effort and the level of demand satisfaction of a given working family (Chayanov 1966). His analysis of the labouring household brought Chayanov to another important conclusion, namely, that a peasant household is a specific type of household without motive to gain profit or to maximize income. Using this model, Chayanov managed to carry out a thorough investigation of the contribution of labour productivity to the establishment of economic equilibrium. He suggested that the higher labour productiv­ity is, the less difficult is the acquisition of a marginal unit of the sum x, which means that a new balance will be established at a higher level of needs satisfaction. He tried to prove his hypotheses using data on peasants’ household budgets in Switzerland in 1909 and 1910 collected by Ernst Laur, as well as data on the Volokolamsk region of Moscow province collected by himself.

Chayanov was not a pioneer in the development of marginal utility theory. Being fluent in German and French he probably knew Western works in this field. The impor­tance of his approach consisted in efforts to construct utility functions based on actual statistical data on consumers’ budgets in different countries (Belguim, Germany, Russia and Switzerland). This enabled Chayanov to produce a corrected model containing new conclusions on functions describing the condition of equilibrium. Later his approach received due attention and was consequently developed by Western scholars (see Durrenberger 1984).

During this period, the basis was laid for further developments in the field of math­ematical economics. Mathematical methods gained general acceptance and some expe­rience was acquired in the mathematical modelling of economic phenomena. Russian economists obtained their first serious scientific results. However, this progress was interrupted by the Revolution and the Civil War.