This study analyses the functioning of the peasant economy in Peru in the context of the present predominantly capitalist system. The central themes are the economic relationships of the peasantry to the rest of the economy of the country and the role of the peasant economy in the entire system, together with the changes that have taken place in that role over time. These themes are investigated by means of a study in detail of a sample of peasant communities in the most traditional and backward region of Peru, the southern sierra. The historical process has generated in Peru one of the most extreme cases of inequality, rural poverty and cultural duality. Nowhere else does the notion of 'economic duality' seem more applicable. Thus an investigation of the case of Peru has methodological value for the understanding of the peasant economy throughout Latin America, and the results of this survey have important implications for the whole region.