'Interrelated prices' and Sraffa's critique of partial equilibrium

Abstract

The early Marshallian literature recognized that, in most significant cases, long-period equilibrium analysis must consider families of interdependent markets which are in direct relation with each other. This perspective, which is different from both standard partial equilibrium and general equilibrium analysis, was developed mainly by two Italian authors, Maffeo Pantaleoni (1857–1924) and Marco Fanno (1878–1964). This paper is aimed at showing that this ‘interrelated prices’ literature has some points of contact with Piero Sraffa's critique of partial equilibrium analysis. It is argued that Sraffa places the case of a Marshallian decreasing returns industry in a context (rivalry for the use of a common factor in fixed supply) which was familiar to Pantaleoni-Fanno: both maintain that the markets involved are interdependent, even though they evaluate differently the possibility of a sensible equilibrium analysis.