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My understanding is that the use of stainless-steel blades for shechita (kosher slaughter) knives was introduced by the early Hassidic movement and initially opposed by the non-Hassidic leaders.

Today, stainless steel is used by everyone. (I think?).

When, and how and why, was this controversy resolved?

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As I understand it, it wasn't actually stainless steel vs. something else (stainless steel hadn't yet been invented, anyway). It's more an issue of the shape of the blade in cross-section: the "old-style" knife was the same thickness top to bottom (and then the edge of this was sharpened, so in profile it would be trapezoidal); the "new" one (called סכין מלוטש in the literature) gradually tapers towards the cutting edge.

R' Shneur Zalman of Liadi discusses the matter in a letter to the rabbis of Vilna (an excerpt of it is also published in his responsa appended to his Shulchan Aruch, no. 7).

He reports, first of all, that R' Chaim Volozhiner quoted the Vilna Gaon as saying that there's actually no halachic problem with using polished knives; the ban against them was due solely to the early concerns about the legitimacy of Chassidus. So once it was recognized that Chassidus is not (G-d forbid) a heterodox movement, then that reason fell away.

RSZ goes on to explain that there is in fact a halachic advantage to using such a knife. There is a chumra, based on the opinions of some Rishonim, that it must not have any detectable nicks at all (the opposing view is that small ones are fine, as long as a fingernail doesn't catch in them). With old-style knives, getting the cutting edge this smooth would usually come at the expense of its being less sharp, while with tapered knives it is easier to make the knife both sharp and perfectly smooth. So as this chumra became more widely adopted, the new knife naturally came along with it.

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see lessonsintanya.com/lit/… "He insisted that Chassidic shochtim should use steel knives for Shechitah (instead of the older wrought iron knives), to ensure the better observance of Kashruth." . I once heard that an innovation in English steel made steel more available around that time, and therefore a viable option. A little research shows that English crucible steel took off in the middle to late 1700s: en.wikipedia.org/wiki/Crucible_steel#English_crucible_steel . and see here... – Menachem Jun 27 '11 at 5:56
... daff.gov.au/__data/assets/word_doc/0003/1371576/… : "Hard crucible steel became available in reasonable quantities in the middle of the eighteenth century. However, the widespread use of steel did not commence until 1857 when the Bessemer process came into being." . See here too: sichosinenglish.org/books/branches-of-chassidic-menorah-2/… – Menachem Jun 27 '11 at 5:57

...Most Jewish communities had been using iron knives, which were more difficult to sharpen. If they were highly polished, they would quickly become knicked, and thus unfit for use. The nuisance of constantly resharpening and repolishing them was not considered worthwhile. Moreover, the polished steel knives had been deemed a new innovation, which some authorities wished to avoid. The Alter Rebbe, however encouraged the use of the polished steel knives (see Alter Rebbe's Shulchan Aruch, Vol. 6, Responsum No. 7.

Source: http://www.sichosinenglish.org/books/branches-of-chassidic-menorah-2/03.htm#t13

It appears that as steel knives stopped being an innovation and are easier to use in a factory where there is little time to resharpen the knife, the non-chassidim had no more reason to oppose their use and started using them themselves.

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All the responses above are based on Hassidic sources, so some important information and context may be missing.

I believe that the Litvish knives are/were less suceptible to pegamim (nicks, imperfections that are problematic re the kashrus of the chalaf/knife), which is an important consideration in shechita, while the Hassidic ones were sharper, but at the same time, more vulnerable to such developing imperfections).

As stated above, technological changes need to be taken into account here as well to understand the historical background.

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