This research is motivated by the conditions under which an agricultural surplus can be produced and sustained in nations (LDC's) that are characterized, grosso modo, by a static agricultural technology and rapid growth in demand for agricultural products. Even though peasant family farms comprise as much as seventy percent of the population in many developing countries, there is still no serious attempt to uncover peasant responses to their growing integration into the national economy at the micro level of their allocation of family labor and other owned resources. This research seizes that micro level and highlights the importance of the interrelationship between subsistence and surplus production among peasant family farms. It incorporates into the economic analysis of peasant household agricultural production a basic characteristic of peasant family farms: their partial engagement in imperfect markets. The data for this study was collected during 1984-1986 in two valleys of the eastern slopes of the Peruvian Andes, Tulumayo (central sierra near the Mantaro valley and the city of Huancayo), and Paucartambo (southern sierra near the city of Cusco).The dissertation is divided in four parts. First, an overview of the developmental squeeze on agriculture under industrialization pressures and the role of peasant economies during this process is presented. An ethno-economic framework of analysis of subsistence and surplus of peasant production is then proposed. Second, the case of Peru's agriculture in the period 1950-1985 is used to analyze the agricultural intensification process (technological and institutional changes) in the context of the open-field communal agriculture in the Peruvian Andes. Third, the ethno-economic analysis of peasant cost-accounting is used to discuss the interrelationship between subsistence and surplus in the two valleys. The analysis is focused on the valuation of non-marketed inputs (family labor, seed) and output (consumption of own production). And fourth, the role of sharecropping in Tulumayo as a substitute for imperfect land and capital markets is examined.This research should be helpful for a better design of agricultural policies (prices, technological research, credit) in Peru and, more generally, for any nation with a backward agricultural sector characterized by mountain environments and communal organization.