Price Scissors

Definition and emergence

The Russian original, Ножницы цен, means "scissors of prices". In autumn 1923, the second year of the New Economic Policy (NEP), industrial and agricultural prices moved apart in opposite directions until the two index curves diverged like the blades of an open pair of scissors, which gave the phenomenon its name. Measured in poods of wheat, industrial goods became several times more expensive than before the war even as their quality fell.

Causes

Agriculture recovered quickly from the 1921-22 famine and Civil War, reaching 75% of pre-war output by 1922, while industry, which had to rebuild infrastructure, lagged far behind: textile output in 1922 was only 26% of the pre-war level. State-run syndicates charging near-monopoly prices for manufactures, and the state's own practice as the principal grain buyer of keeping bread grain prices artificially low to avert famine, widened the gap further.

Course

The gap opened through 1923 and peaked in October. As peasants' incomes fell they could no longer buy manufactured goods, and they stopped selling surplus grain beyond what their taxes required. Expensive, poor-quality manufactures piled up unsold in a "sales crisis", and by August 1923 a wave of economic strikes had spread through industrial centres.

Response and resolution

The government reduced industrial costs by cutting staff, rationalizing production, controlling wages and benefits, and expanding consumer cooperatives such as those of the People's Commissariat of Trade, and it compelled industrial trusts to unload warehoused stocks before receiving credits. By April 1924 the agricultural index had risen to 92 and the industrial index had fallen to 131, bringing the two near balance. The question then became one of the optimum balance between industrial and agricultural prices, feeding into rationalization campaigns and the struggle over workers' employment, wages and benefits.

Examples and consequences

A similar price divergence had occurred in 1916, when the price of rye rose by 47% while a pair of boots rose by 334%. After the crisis of 1927 the Soviet economist Lev Gatovsky analysed the problem and took part in planning the state intervention that followed. The persistent imbalance of the mid-1920s contributed to the grain-procurement crisis, reduced the agricultural exports and foreign-currency earnings needed to buy industrial equipment, and became one of the reasons for winding up NEP and launching forced collectivization.

Distinctions and points at issue

The price scissors was not a deliberate policy of price-setting but the divergent movement of two price indices. It is tied to the NEP period (1921-1928) and to the smychka, the worker-peasant alliance, and although the state closed the gap by April 1924, that did not end the underlying allocation problem. Some secondary accounts give the October 1923 peak as roughly 290% and describe industrial prices as three times higher relative to agricultural prices than before the war; this entry follows the more widely attested figures of 276% and 89%.