World Economic History�

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Topic 2: Contingencies, Innovations, and Business Cycles

Altuğ Yalçıntaş, Ankara University, PolEcon

2025/2026 Academic Year

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Hockey stick v.1

Rapid, sustained growth in average living standards since 1700.

How did this happen?

Impact of innovation on economic performance

Daron Acemoglu, Ufuk Akcigit, and Simon Johnson. 2026. “TECHNOLOGY AND ECONOMIC DEVELOPMENT” NBER Working Paper 34730

Hockey stick v.2a

Figure 1.2a Carbon dioxide in the atmosphere (1010–2020) and global carbon emissions from burning fossil fuels (1750–2018).

Hockey stick v.2b

Figure 1.2b Northern hemisphere temperatures over the long run (1000–2019). The figure shows 5-year moving averages.

Hockey stick v.2c

Figure 2.20 Global atmospheric concentration of carbon dioxide and global temperatures (1750–2019).

An unsustainable path

GDP and the Rule of Law

Source: Daron Acemoğlu. 2025. “Nobel Lecture”

The rule of law and technology

Source: Daron Acemoğlu. 2025. “Nobel Lecture”

Measuring income and living standards

Gross Domestic Product (GDP) = A measure of the market value of the output of final goods and services in the economy in a given period. Output of intermediate goods that are inputs to final production is excluded to prevent double counting.

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• Usually expressed in per-capita terms (as an average income).

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GDP: An incomplete measure

• GDP tells us how big the the total output of a country is
• GDP per capita tells us how large each person’s slice of that output is if everyone received the same amount.

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• Consider a group of people whose income is $5,000 per month. Now imagine half of the group has their income increased to $9,000 and the other half has their income reduced to $1,000. Average income is unchanged but what about living standards?
• Does income distribution affect wellbeing?

GDP and depletion of natural resources

• The failure to count the depletion of our natural surroundings can make a big difference in our assessment of average living standards.
• Between 1971 and 1984 the annual rate of growth of Indonesian GDP was 7.1%. If the depletion of petroleum reserves, forests, and soil is taken into account, then it would have been 4%.
• In order to count output in a way that truly informs us about how well off people are we must not only include what has been used up, but also the depletion of natural resources.

Climate change

Consequences of climate change:

• Melting of polar ice caps
• Rising sea levels
• Changes in climate and rain patterns
• Destruction of food-growing areas
• Uninhabitable zones

The Tragedy of the Commons

Social interactions can help explain the Tragedy of the Commons and social dilemmas like climate change.

Enclosure �and the rise of private property of land

The economy

Any hope?

Governments can address environmental problems by:

• Regulating the amount of emissions or other environmental damages
• This regulation can be done by banning or issuing a limited number of permits

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Any hope?

Figure 2.24 Changes in energy use and changes in GDP per capita in Sweden (1995–2019).

Environmental dynamics curve

Stable and unstable equilibria

Negative and positive feedback

Business Cycles

Source: Mascolo I (2019) Recent Developments in the Dynamic Stability of Elastic Structures. Front. Appl. Math. Stat. 5:51. doi: 10.3389/fams.2019.00051

Business Cycles

Source: https://capitalideasonline.com/wordpress/schumpeters-heroes-3 [Accessed October 2025]

The business cycle

We have two definitions of recession:

• NBER definition: Output is declining. A recession is over once the economy begins to grow again.
• Alternative definition: The level of output is below its normal level, even if the economy is growing. A recession is not over until output has grown enough to get back to normal.

The movement from boom to recession and back to boom is known as the business cycle.

Creative Destruction

“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”

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Joseph A. Schumpeter. Capitalism, Socialism and Democracy (1942)

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Can capitalism survive?

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“Can capitalism survive? No. I don’t think so.” 

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Joseph A. Schumpeter. Capitalizm, Socializm ve Democracy (1942)

Rates of inflation, 1875-2025

Global oil and other commodity price shocks

Market interest rates

Real rates of return on assets

Daily confirmed Covid 19 cases by region

Housing bubble?

Contingencies in history

Opposite of necessity

In Turkish: “Olumsal” or “Başka türlü de olabilecekken olmuş olduğu gibi olan şey”

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Contingencies in history

• Chance events 🡪 Super Lotto
• Random events 🡪 “bingo” or “Tombala”
• Probabilistic events 🡪 You pass an exam or you fail
• Unpredictable events 🡪 Earthquakes

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An important element is the mechanisms of positive feedback and self-reinforcement

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Was capitalism inevitable?

• The emergence of colonialism
• Trying to reach out India, but failing to do so.
• First, they reached Bahamas, not Americas
• Gold and precious metals
• The British, the Dutch, and the French were not interested until Amerigo Vespucci, the1500s
• The birth of orientalism
• The indigenous cultures in Americas

Source: http://kids.britannica.com/elementary/art-88703 [October 2019]

Contingencies in history

Source: https://www.newscientist.com/article/2494390-volcanic-eruptions-may-have-helped-spark-the-french-revolution [Accessed October 2025]

Contingencies in history

Source: https://hakaimagazine.com/features/the-earthquake-that-brought-enlightenment [Accessed October 2025]

Contingencies in history

Source: https://courses.ems.psu.edu/earth107/node/1611 [Accessed October 2025]

Contingencies in history

Source: https://www.alamy.com/greece-active-and-extinct-volcanoes-in-the-aegean-sea-region-map-image549090269.html [Accessed October 2025]

Contingencies in history

• To the Finland Station: A Study in the Writing and Acting of History (1940) by Edmund Wilson
• a book on the history of socialist ideas
• final chapter: Lenin arriving at the Petrograd (St. Petersburg) Finland Station in 1917 and entering Russia prior to the Soviet Revolution

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Contingencies in history

• The Cheese and the Worms: The Cosmos of a Sixteenth Century Miller (1976) by Carla Ginzburg
• Microhistory: exceptional cases, ignored figures, reciprocal influences among past events, suppressed cultures etc.
• Against grand theories. For complexity and chaos.

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Contingencies in history

• The Pity of War (1998) by Niall Ferguson
• “… the human atrocity known as the Great War was entirely England's fault. … England entered into war based on naive assumptions of German aims, thereby transforming a Continental conflict into a world war, which it then badly mishandled, necessitating American involvement. The war was not inevitable, Ferguson argues, but rather was the result of the mistaken decisions of individuals who would later claim to have been in the grip of huge impersonal forces.”

What is a positive feedback mechanism?

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«Small» events 🡪

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Mechanisms of

Positive feedback or self reinforcement

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🡪 «Big» consequences

An example to positive feedback mechanism:

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Imagine you’re in a music studio, a small bar with live music, or a «köy düğünü»

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A small (smaller) sound

A big (bigger) sound

An example to positive feedback mechanism:

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Imagine you’re in a music studio, a small bar with live music, or a «köy düğünü»

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BOOM!

An example to positive feedback mechanism:

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Imagine you’re in a music studio, a small bar with live music, or a «köy düğünü»

No feedback in between

Output

Input