Scissors Crisis
Encyclopedia
The Scissors Crisis is the name for an incident in early Soviet
history during the New Economic Policy
(NEP), when there was a widening gap ("price scissors
") between industrial
and agricultural
prices. The term is now used to describe this economic circumstance in many periods of history.
Like the blades of a pair of open scissors, the prices of industrial and agricultural goods diverged, reaching a peak in October 1923 where industrial prices were 290 percent of their 1913 levels, while agricultural prices were only 89 percent (the name was coined by Trotsky after the scissors-shaped price/time graph). This meant that peasants' incomes fell, and it became difficult for them to buy manufactured goods. As a result, peasants began to stop selling their produce and revert to subsistence farming, leading to fears of a famine.
and the civil war
. In contrast, the industry took longer to recover, due to the need to rebuild infrastructure
. Furthermore, the problem was exacerbated by the government seeking to avoid another famine by keeping the bread grain prices at artificially low levels.
The widening gap in prices also showcased the inelastic nature of trading with the peasants. For example, a peasant did not need to buy a lantern from the state, as they could simply make candles themselves. Whilst on the other hand, peasants were unlikely to respond, according to classic economics, to lower prices by selling more grain to buy more goods; instead farmers would rather either eat more or work less, as they did not require these goods. It is worth noting that due to the NEP being implemented in 1921, it had rapid success, and by 1923 (the year of the Scissor Crisis), factory output had a huge increase of 200%, along with cereal output rising by 23%. Due to the success in the countryside, food prices fell, whereas industrial prices remained constant, and therefore the Smychka
(union with peasants) was jeopardised.
) by expanding the network of consumer cooperatives
(such as the People's Commissariat of Trade).
As a result of these actions, the imbalance started to decrease. By April 1924, the agricultural price index
had reach 92 (compared to its 1913 level) and the industrial index had fallen to 131.
The scissors crisis caused many problems in the long term for the NEP--causing tensions seen pre-1917 revolution.
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
history during the New Economic Policy
New Economic Policy
The New Economic Policy was an economic policy proposed by Vladimir Lenin, who called it state capitalism. Allowing some private ventures, the NEP allowed small animal businesses or smoke shops, for instance, to reopen for private profit while the state continued to control banks, foreign trade,...
(NEP), when there was a widening gap ("price scissors
Price scissors
The price scissors is an economic phenomenon when for a certain group or sector of productive population the overall valuation from their production for sale outside this group drops below the valuation of the demand of this group for goods produced outside the group after a period of reasonable...
") between industrial
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
and agricultural
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
prices. The term is now used to describe this economic circumstance in many periods of history.
Like the blades of a pair of open scissors, the prices of industrial and agricultural goods diverged, reaching a peak in October 1923 where industrial prices were 290 percent of their 1913 levels, while agricultural prices were only 89 percent (the name was coined by Trotsky after the scissors-shaped price/time graph). This meant that peasants' incomes fell, and it became difficult for them to buy manufactured goods. As a result, peasants began to stop selling their produce and revert to subsistence farming, leading to fears of a famine.
Causes
The crisis happened because agricultural production had rebounded quickly from the famine of 1921-1922Russian famine of 1921
The Russian famine of 1921, also known as Povolzhye famine, which began in the early spring of that year, and lasted through 1922, was a severe famine that occurred in Bolshevik Russia...
and the civil war
Russian Civil War
The Russian Civil War was a multi-party war that occurred within the former Russian Empire after the Russian provisional government collapsed to the Soviets, under the domination of the Bolshevik party. Soviet forces first assumed power in Petrograd The Russian Civil War (1917–1923) was a...
. In contrast, the industry took longer to recover, due to the need to rebuild infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
. Furthermore, the problem was exacerbated by the government seeking to avoid another famine by keeping the bread grain prices at artificially low levels.
The widening gap in prices also showcased the inelastic nature of trading with the peasants. For example, a peasant did not need to buy a lantern from the state, as they could simply make candles themselves. Whilst on the other hand, peasants were unlikely to respond, according to classic economics, to lower prices by selling more grain to buy more goods; instead farmers would rather either eat more or work less, as they did not require these goods. It is worth noting that due to the NEP being implemented in 1921, it had rapid success, and by 1923 (the year of the Scissor Crisis), factory output had a huge increase of 200%, along with cereal output rising by 23%. Due to the success in the countryside, food prices fell, whereas industrial prices remained constant, and therefore the Smychka
Smychka
Smychka was a popular political term in Soviet Russia and Soviet Union. It can be roughly translated as "collaboration in society" "union", "alliance", "joining the ranks"...
(union with peasants) was jeopardised.
Actions
To combat the crisis, the government reduced costs of industrial production by cutting staffs, rationalizing production, controlling wages and benefits and reducing the influence of traders and middlemen (NEPmenNew Economic Policy
The New Economic Policy was an economic policy proposed by Vladimir Lenin, who called it state capitalism. Allowing some private ventures, the NEP allowed small animal businesses or smoke shops, for instance, to reopen for private profit while the state continued to control banks, foreign trade,...
) by expanding the network of consumer cooperatives
Consumers' cooperative
Consumer cooperatives are enterprises owned by consumers and managed democratically which aim at fulfilling the needs and aspirations of their members. They operate within the market system, independently of the state, as a form of mutual aid, oriented toward service rather than pecuniary profit...
(such as the People's Commissariat of Trade).
As a result of these actions, the imbalance started to decrease. By April 1924, the agricultural price index
Price index
A price index is a normalized average of prices for a given class of goods or services in a given region, during a given interval of time...
had reach 92 (compared to its 1913 level) and the industrial index had fallen to 131.
The scissors crisis caused many problems in the long term for the NEP--causing tensions seen pre-1917 revolution.
External links
- 1924: Scissors Crisis - "SmychkaSmychkaSmychka was a popular political term in Soviet Russia and Soviet Union. It can be roughly translated as "collaboration in society" "union", "alliance", "joining the ranks"...
and the Scissors Crisis", at Seventeen Moments in Soviet History, an essay by Lewis Siegelbaum