Economic Theorists, Reasoning Villagers

How can you hide a book that makes a substantial contribution to economic theory? Well, you can call it Palanpur, which is the name of a tiny Indian village. (I look forward to picking up my economic theory in the future from books with such titles as Eynsham and Leamington Spa.) But, in fact, the title is no mystery. This book, which contributes so much to economic theory, is also about the remote Indian village called Palanpur. The village, we learn from the authors, ‘lies in the Moradabad District of West UP, 13 kilometres north of the town Chandausi, at the point 78°46'E 28°33'N’ – a description that is precise enough to satisfy most readers (especially, I take it, the ones who know where Chandausi is).

Two of the most distinguished British economists went off, after suitable preparations, to stay in this tiny village from September 1974 to April 1975, and revisited it in August 1977. During the winter of 1974-75, they watched how the village economy functions, sought answers to questions they had formulated, and had conversations with the villagers in ‘informal and cheerful’ gatherings. This is the kind of thing that anthropologists do often enough (or are supposed to do), but economists seldom try. Bliss and Stern not only provide a fascinating account of how the village economy of Palanpur functions, but also how their findings tie up with economic theory.

The treatment of economic theory in this book is not confined, however, to interpreting or analysing the observations in Palanpur. It includes some very general discussions related to land, labour and capital markets, allocation of labour in peasant farming, the relative efficiency of share-cropping and other tenurial arrangements, the impact of uncertainty in agricultural resource allocation, and so on. We have, therefore, two books in one: a slim volume of significant contributions to economic theory (presenting, analysing, assessing, rejecting or extending various models of development economics), and a rather larger volume reporting the goings on in Palanpur and the lessons they have for economic theory. This duality is worth noting – both because many potential readers who could benefit from the book might otherwise be turned off by their lack of curiosity about a ‘village study’, and also because Bliss and Stern’s approach to studying Palanpur cannot be properly appreciated without bearing in mind their underlying concern with developing economic theory. It is, I suppose, not surprising that left to themselves in a remote Indian village with little to do, the young theorists’ fancy would lightly turn to thoughts of theory, but the involvement of the book with economic theory is more fundamental – and more weighty – than that. Indeed, it provides the motivation for the entire study.

Chapter Three, called ‘Theory and India’, is quite a tour de force on development theory in general. In fact, despite that title, many of the theories discussed (related to the works of Alfred Marshall, Theodore Schultz, Arthur Lewis, Albert Hirschman, Gunnar Myrdal and others) are not specifically concerned with India as such. Indeed, that chapter provides a remarkably pithy and illuminating account of some of the most basic issues of development analysis and economic policy, and it is, of course, very well worth reading for its own sake.

But to come now to Palanpur, what did Bliss and Stern find there? Would their observations give pause to economists and others not specifically interested in this tiny village of 762 people? In fact, Bliss and Stern found a great many things that help to illustrate problems of economic development in general. Some of the identified facts also run counter to a number of empirical generalisations commonly made about Indian agriculture. For example, they found that tenanted farms are not inferior in productivity to non-tenanted ones. They found little evidence for output per acre declining with the size of farms. They observed that the number of workers did not have a significant impact on the output of the farm. They noted that ‘simple neo-classical models with prices equal to marginal products could not be sustained.’ These and other interesting findings raise important questions about theorising on Indian agriculture in particular and economic development in general. This is not the place to go into the technical issues involved, but I should mention that Bliss and Stern’s findings have unsettling implications for theories constructed by different – often battling – schools of thought.

Bliss and Stern are constructive in outlook, however. They connect the observed patterns to standard theories, with suitable modifications and adaptations, many of which they had proposed on more general grounds towards the beginning of the book. At the end of the day, Bliss and Stern felt able to conclude that ‘much of the workings of the agricultural economy of Palanpur can be understood using standard methods and theories.’ As economic theorists, Bliss and Stern turn out to be reformist rather than revolutionary. But they also note that there remain ‘important problems that are imperfectly understood’. And they mention some of the observations that they have not been able to fit into their reformed structure of development theory.

Two points in particular are worth noting in this general context. First, some of these ‘imperfectly understood’ points are indeed central to theorising about economic development. For example, the tendency for certain prices or price-like variables to be rigid and fixed despite variations of economic circumstances (e.g. the 50-50 split in share-cropping) may call for a more radical departure in the structure of economic theory than Bliss and Stern attempt. The role of the price mechanism itself needs re-examination. Similarly, the concept of ‘efficiency’, which Bliss and Stern employ quite extensively, is deeply threatened by the fact that the people involved may have attitudes about institutional features (e.g. ‘there appeared to be a dislike amongst many of the inhabitants of Palanpur for working as wage labourers’). The traditional efficiency concepts work on the basis of ignoring preferences as to institutional forms. What is checked is whether more output could have been produced with the same amount of resources, such as labour (no matter how that labour is employed). Once the workers’ institutional preferences are taken into account, efficiency ceases to be an unambiguous concept. Some of the untidy ends of Bliss and Stern’s analysis represent – quite possibly – the thin ends of rather formidable wedges.

Second, the implications of Bliss and Stern’s modifications of standard theory can be quite far-reaching. For example, a good deal of economic analysis of efficiency of agricultural allocation proceeds on the basis of equating rates of income with the respective marginal contributions to production. When that equality is denied, a great many empirical studies of the neo-classical type come to lack foundation. Similarly, if tenancy, as opposed to peasant ownership, is not inimical to productive allocation, then the case for land reform rests entirely on considerations of equality and justice, and production advantages do not come into the picture.

Bliss and Stern go on to highlight some policy conclusions that may be drawn from their empirical findings. In terms of instruments of influence, they emphasise the crucial role of enhancing knowledge (both through educational expansion and through more suitable extension services), improving the quality of seeds, improving the credit market, etc, and rather underplay some of the more common institutional considerations – e.g. land reform, reform of share-cropping. Each of the particular cases is well defended in terms of Bliss and Stern’s general analysis, but it is possible to argue that some of the untidy ends in their analysis – referred to earlier – point precisely to the importance of more basic institutional change.

Finally, one of the most interesting aspects of Bliss and Stern’s study is the view of the Indian villagers that emerges from the book. The Palanpur villagers fit neither the old-traditional image of ‘inert’ peasants – unreasoning slaves of habit – nor the new-traditional image – advocated by Chicago economists but by now very widely adopted – of cunning profit-maximisers, operating with impeccable efficiency and success. Bliss and Stern’s villagers reason about production decisions and are not cast in the role of unresponding ‘subsistence’ farmers. Faced with difficult questions put to them by these two exacting economists, the villagers were apparently ‘happy to indulge in ... counterfactual discussions and had no difficulty with hypothetical questions’. On the other hand, they often did not maximise profits, and sometimes did not even try. Their objectives seem to be more complex, and the pursuit of these objectives is also significantly qualified by institutional constraints as well as ignorance and uncertainty. This image of reasoning villagers whose motives are complex, who are restrained by society, and quite capable of making mistakes, rings true in a way that the more commonly used traditional images do not. Bliss and Stern clearly do deal with real people rather than with the phantom figures that haunt so much of economic theory. This is one of the many attractive features of this illuminating and important book.