Piero Sraffa and Attilio da Empoli: Competing Solutions for the Crisis of the Theory of the Firm in the Early 20th Century

In the first third of the 20th century, economic theory develops the key features of the modern theory of the firm, which determine also the essential elements of the theories of value and competition. Italian economists fully participate in a discussion at times confusing that takes place on the backdrop of Marshall’s over-ambitious and ultimately unsustainable attempt to integrate increasing returns to scale into a framework of static competition. In this context, Piero Sraffa and Attilio da Empoli, offer clear-cut albeit opposed alternatives to emerge from the ambivalences of the Marshallian heritage. Of similar age and ambition, both were driven by a thirst for logical purity which only extreme solutions were able to satisfy. Apart from a brief foray into monopolistic competition theory, Piero Sraffa developed a long-run vision of perfect competition under constant returns to scale with complete malleability of factors, which allows the establishment of static equilibrium. Searching for conformity with immediate experience, Attilio da Empoli concentrates instead on the shortest of short-runs, in which the momentary fixity of factors creates transitory equilibria, which continuously point towards ‘ultra-marginal’ phenomena. This article aims to bring out the defining characteristics of their work in the context of the broader contribution of Italian theorists.