Potential scissor crises Directory UMM :Data Elmu:jurnal:S:Structural Change and Economic Dynamics:Vol11.Issue1-2.Jul2000:

turned radically against agricultural producers, the peasants, so disastrously disad- vantaged by the market, were sorely tempted to turn away from it and retreat into a primitive form of self-sufficiency, to which, after all, they had long been accustomed under serfdom and even during the subsequent emancipation. If they could not obtain their clothes, shoes, blankets, and other industrial goods on reasonable terms with money obtained from selling their food to the towns at acceptable prices, they would refuse to sell any food at all, consume it all themselves, and make these other products by hand in their own cottages, leaving the towns to starve. In more developed countries this would not be a threat since agricultural producers, long removed from self-sufficiency, would be too dependent on the market ever to contemplate ‘withdrawing from it’. But in a still underdevel- oped economy, such as the Soviet Union was at the time, it was a dire threat indeed, a threat to the urban population and with it to the regime itself and to the success of the Revolution. The concept of a ‘scissor crisis’ and the term itself probably had their origin in Trotsky’s report to the twelfth party congress in April 1923 in which he produced a diagram showing two ‘blades’ of the price scissors representing industrial and agricultural price levels, respectively, intersecting at the fulcrum of the scissors whose nature was not explained in any detail beyond the fact that it represented the conventional or traditional relative level which had proved acceptable for a historical period. Extensive though the subsequent debate proved to be, the nature of the phenomenon has never to my knowledge been analysed in general terms, probably being too country- and time-specific to arouse the interest of economists as opposed to historians or political analysts. The cause of the particular Soviet scissor-like movements in market prices, however, was not far to seek. The high post-war agricultural prices induced by war-time scarcities were quickly brought down by recovering agricultural produc- tion as returning soldiers swelled the rural labour force, and neglected, but still fertile land was retaken into cultivation. By contrast industrial prices, at first kept low by what was known as ‘razbazarovanie’ or ‘squandering’, the competitive scramble to obtain industrial working capital by cut-price sales of raw material and even equipment experienced a rapid rise as industrial managers realised their mistake and formed enterprise trusts and syndicates with monopolistic intent and effect 1 .

2. Potential scissor crises

Have we seen the last of scissor crises? Not necessarily. A modern version of the phenomenon may well make its appearance due to the new-found concern with environmental issues. When zealous observers spot a threat to the food chain caused by excessive use of fertilizers or pesticides or by outbreaks of epidemic 1 A concise history of the scissor crisis in Soviet Russia may be found in, e.g. Carr 1979. disease in livestock, the loss of confidence by consumers in important agricultural products and consequent fall in demand may drive down agricultural prices quite sharply in relation to the prices of industry which may be rising sharply at the same time due to the costs of pollution control in cities. In some countries, particularly in underdeveloped regions, this might pose a threat of crisis dimensions quite different in kind from the Russian one, as the already acute process of landflight is accelerated with impoverished peasants flocking into towns in increasing numbers, aggravating conditions in shanty towns with urban misery and disease, not to speak of possible shortages of home-grown produce and the consequent need for costly imports, international borrowing and mounting debt. All this might replicate the Soviet situation of the 1920s with very different causes and different effects. The environ- mental impact of the 20th and 21st centuries may well ensure that scissor crises re-emerge in various guises for a long time to come. It may not be idle therefore to enquire how the relative values of the two major sectors of an economy, those shadow prices constructed by economists to mimic a ‘rational’ price system independent of the vagaries of the market, might be affected by various physical changes; in particular we want to investigate whether the value equilibrium might not be under constant threat from universal, non country-specific developments like the cost effects of technological progress, always to be expected, the more so since, contrary to observed market prices, these effects may be formally implicit in the price models if suitably simplified for all to see. We shall refer to these shadow prices as ‘value-prices’ as opposed to market prices in the rest of this paper, and investigate a more general problem of which scissor crises may be a particular though important sub-species. Even though firm conclusions as regards scissor crises will turn out to be impossible in the general case, it may be useful to establish general rules on the impact of efficiency gains in various sectors on the movement of value-prices, for application to conclusions on scissor prices in specific cases where this is possible.

3. ‘Surplus-levelling’ prices