Working Paper
Price Scissors, Rationing, and Coercion

This paper re-examines the current debate on price scissors based on an extended framework, in which the production and trade of industrial consumer goods within the rural sector is incorporated. It confirms that in the economy considered by Preobrazhensky, consumer rationing, especially of industrial goods in rural areas, is prevalent. Under the binding rationing the price response of agricultural surplus cannot be determined theoretically. This finding reopens the field for empirical investigation. The paper identifies the conditions that guarantee the validity of Preobrazhensky's two propositions: (1) the state can increase its capital accumulation by moving the terms of trade against peasants, and (2) the urban workers need not necessarily suffer therefrom. It demonstrates that in order to ensure the validity of these two propositions, besides the need to assume positive price response of agricultural surplus and of labour force input, food rationing in urban areas and the rationing of major industrial consumer goods in rural areas are essentially required. As a consequence, the paper suggests that the price- scissors type of regulation would induce the state's coercion on peasants to collect their food surplus.