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Scissors Crisis

SCISSORS CRISIS

The Scissors Crisis occurred in the Soviet Union during the New Economic Policy (NEP) era of the 1920s and refers to the movements, over time, of the relative prices of industrial and agricultural products. When the movements of relative prices are presented graphically, the observed patterns resemble the open blades of a pair of scissors; hence the term Scissors Crisis.

The observed price movements in the Soviet Union during the 1920s can be explained by the relatively quicker recovery of the agricultural sector (the relative prices of agricultural products falling) vis-à-vis the apparently slower recovery of the industrial sector (the relative prices of industrial goods increasing). This recovery occurred after the collapse of the Soviet economy during the tumultuous era of war communism (19171921). Such a pattern of recovery following collapse is not unusual. Moreover, the observed changes in relative prices would be expected in a market economy where the degree of decline and the subsequent rate of recovery differ by sector of the economy.

The underlying issues of the Scissors Crisis are important to the understanding of Soviet economic policy in the 1920s, especially the response of the Soviet state to these price changes. Soviet agriculture during the NEP was based largely on a private peasant economy. The development of modern agriculture was a major focus, cast within the framework of socialist economic thought. Although industry was recovering after war communism, it was hampered by substantial state ownership and the concentration of industry in the form of trusts, allowing for the exercising of monopoly power. In light of Josef Stalin's dramatic economic changes beginning in the late 1920s (full nationalization, collectivization of agriculture, and the replacement of markets by the administrative command system), the issues and discussions of the 1920s assume great importance in one's understanding of Soviet economic history.

First, if agriculture is a major component of total output in the economy, and agricultural output is to be both a source of food and a source of financing to promote the process of industrialization, the terms of agricultural production (amount, source, and means of distribution) have a major impact on the size and the distribution of the share dedicated to the financing of industrialization.

Second, the nature of property rights and the organizational arrangements in the agricultural sector were both matters of contention during the Soviet pre-plan era. Specifically, during the 1920s, experimentation with different forms of cooperative farm organizations was intended to change production arrangements as well as state access to the agricultural product; these changes could limit or eliminate market forces.

Third, Stalin argued, as a major justification for collectivization (beginning in 1929), that in fact the pace of industrialization would be limited by the ability of peasants under private property arrangements to withhold production in part to manipulate (increase) prices. According to Stalin, this would affect the terms of trade between the city and the countryside and thus reduce the pace at which industrialization could be pursued.

Fourth, the policies chosen for addressing the Scissors Crisis form an important component of the assessment of the NEP economy of the 1920s. Specifically, it was argued that there was a significant element of monopoly in Soviet industry at this time. State policy focused on this issue, threatening good intervention or the introduction of competing imports to force a reduction of industrial prices. In addition, threats were made to limit the access of industry to capital and thus change the behavior of the industrial sector.

Although the behavior of agricultural and industrial prices in the Soviet Union during the 1920s can be explained by the underlying market forces of supply and demand, nevertheless within the context of events of the 1920s and subsequent behavior by Stalin, the events of the Scissors Crisis have assumed major importance for understanding the NEP period. Moreover, the issues involved are fundamental components of contemporary theorizing about the process of economic development.

See also: new economic policy

bibliography

Gregory, Paul R., and Stuart, Robert C. (2001). Russian and Soviet Economic Performance and Structure, 7th ed. New York: Addison Wesley Longman.

Nove, Alec. (1982). An Economic History of the U.S.S.R. New York: Penguin.

Sah, R. K., and Stiglitz, J. E. (1984). "The Economics of Price Scissors." The American Economic Review 74(1): 125138.

Robert C. Stuart

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