From philosophy and watermills to the economics of innovation

On the occasion of the EUI flagship event EUIdeas, which shares this platform’s name, we asked EUI academics: What is the most powerful piece of knowledge you have encountered, and how has it transformed your research?

Here, the personal story of Giacomo Calzolari:

I have been reflecting on a moment when a single piece of knowledge, an idea encountered in an unexpected setting, profoundly redirected my intellectual path and determined what I wanted to study. I can trace this shift to a moment of my life that initially seemed incidental: a secondary school philosophy class that unexpectedly became an introduction to economic history.

By that time, “philosophy” meant, to me, canonical texts and abstract arguments. I expected discussions of metaphysics and ethics, not diagrams of production or accounts of technological change. Yet my philosophy professor was unusually attentive to the material conditions underlying ideas, and often chose to illuminate philosophical themes through economic history. In fact, he clearly liked this more than teaching philosophy in any narrow sense. His classes moved easily from theory to the concrete structures that made certain ideas possible at particular moments in time.

In one class, he delivered a remarkably lucid lecture on the spread and changing uses of watermills in the medieval age and their consequences for production and social organisation. He presented them as an example of how a relatively simple technology can reorganise economic activity once widely adopted in particular regions and periods. The mechanism he emphasised was that, by converting hydraulic energy into mechanical work, watermills provided a scalable source of power for tasks that otherwise relied on human or animal effort. This could raise labour productivity and reduce the time and effort required to process food, with remarkable consequences, depending on site conditions, water management, and the local rules governing access to streams and millraces. (Only later did I realise that my professor admired not just Marc Bloch’s 1935 article on the watermill, but also the debate it sparked.)

The broader message felt both simple and deep to me: New technologies can relax existing constraints, helping people do more with given resources, and sometimes reshaping what they consider feasible. He also made clear that effects differ across contexts, depending on geography, institutions, and complementary investments. What struck me was how the invention mattered less as an isolated “breakthrough” than as a catalyst for a wider set of adjustments.

That lecture went through a set of questions that I would later understand as distinctly economic: Under what conditions does a technology diffuse rather than remain local? How do property rights, transaction costs, and market dimension shape adoption? What kinds of rents arise around essential infrastructure, and who captures them? How does a new source of mechanical power shift bargaining positions within a value chain?

Those questions stayed with me, and they are also what draws me to study Artificial Intelligence today: It is already reshaping how markets function, with direct implications for competition and the distribution of gains from new technologies. The lens I now use to think about these questions was first shaped in that class: my first encounter with the economics of innovation, long before I had the vocabulary. The medieval setting made clear that technological change is rarely linear or frictionless; it is embedded in constraints, geography, energy availability, legal regimes, and social hierarchy, and its effects propagate through networks of production and exchange. Seen that way, AI matters less as a single “breakthrough” than as a capability whose impact depends on institutions and complementary investments, and on how it is taken up by individuals.

That lecture did not make me an economic historian, but it decisively widened my intellectual horizon. The experience planted a durable curiosity about how innovations reshape economies and societies, and it ultimately nudged me toward economics as a discipline that formalises mechanisms and tests them against evidence. In a quiet and slightly unexpected way, that conversation about medieval watermills became my first lesson in the power of knowledge: not only to explain the complexities of the world, but to nudge a younger version of me toward exciting questions.

Giacomo Calzolari is professor at the EUI Department for Economics and Provost for Research and External Relations. Calzolari’s current research focuses on artificial intelligence, competition policy, industrial organisation, regulation, banking regulation and supervision, and the economics of incentives. Notably, he has pioneered the analysis of the impact of artificial intelligence in markets and competition.
Notable recent publications include:

• Algorithms and Competition in Agentic Markets , with E. Calvano, V Denicolò and S. Pastorello, forthcoming 2026, Econometric Society Volume for 2025 World Congress
• AI and policy: What makes AI different, with E. Calvano, ECONOMIC POLICY 2025

This EUIdeas essay is a contribution to the conversations of the EUIdeas flagship event themed The Power of Knowledge, an occasion to celebrate the EUI’s 50^th anniversary. The event aims to reimagine Europe by showing how universities can deploy knowledge to illuminate challenges, inform public debate, and contribute intellectually to the future of our societies.