This year’s Nobel Prize in Economics recognizes groundbreaking work on how innovation, entrepreneurship, and creative destruction fuel sustained economic growth. The 2025 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel went to Joel Mokyr, Philippe Aghion, and Peter Howitt for their complementary research on how societies generate technological progress and long-run prosperity.
Their work highlights the institutional and dynamic forces that make knowledge productive and prosperity possible. It is also timely: as governments worldwide turn toward protectionism and bureaucratic control, the prize re-centers attention on what actually drives growth—open societies that reward experimentation and tolerate disruption.
The prize was given to Joel Mokyr “for having identified the prerequisites for sustained growth through technological progress,” and to Philippe Aghion and Peter Howitt “for the theory of sustained growth through creative destruction.”
Mokyr’s historical work argues that enduring economic growth follows when societies create institutions and foster a culture that values the development and dissemination of productive ideas. Aghion and Howitt’s theoretical work, by contrast, formalizes the dynamic process in capitalism where new technologies, products, and business models emerge and replace outdated ones. Taken together, their contributions offer a unified picture: sustained prosperity requires both an institutional foundation that enables discovery and a dynamic market process that continually overturns the old in favor of the new. As both sets of scholars make clear, this process can only function when societies are open to economic disruption.
The most enduring question in all of economics is why some nations are rich while others remain poor. As Robert Lucas famously remarked, “once you start thinking about economic growth, it’s hard to think about anything else.”
For most of human existence, per capita incomes were flat for centuries then suddenly surged during the Industrial Revolution—a phenomenon known as the “hockey stick” of growth. Both technological advances and population growth existed long before the Industrial Revolution, but they had never before combined to produce sustained increases in living standards. Why? The standard textbook story, growth as a function of labor and capital accumulation, cannot fully explain the takeoff. As Mokyr and others have shown, technological progress long pre-dated the modern era, and the global population remained relatively stable for centuries before exploding in tandem with growth. Something else had to be at work, something institutional, cultural, and deeply tied to how societies treat knowledge and innovation.
The work of Mokyr, Aghion, and Howitt speaks directly to this mystery. Each of them, from different perspectives, provides an answer to where growth comes from and why it persists. Their recognition by the Nobel Committee represents a powerful reaffirmation of economics grounded in theory, institutions, and long-run processes, as opposed to the short-term, randomized control trial-based approach that has dominated recent years.
This is a victory for economists who see markets and ideas as evolutionary systems and who understand capitalism not as static efficiency but as a dynamic engine of discovery.
Mokyr’s Work: Institutions, Knowledge, and the Cultural Roots of Innovation
Joel Mokyr, winner of half the prize, has long argued that technological change alone cannot explain modern economic growth. As he observes, technological creativity existed in China, the Islamic world, and classical antiquity, but none of these civilizations experienced the self-sustaining rise in productivity that transformed Europe after 1750.
The difference, Mokyr insists, lay not merely in inventions but in the institutions and culture that supported them. His career has been devoted to demonstrating that sustained growth arises when societies develop both a respect for useful knowledge and the social infrastructure to apply it.
Mokyr’s most influential works are, fittingly, books rather than journal articles, which are testaments to his identity as an economic historian and storyteller. The Lever of Riches: Technological Creativity and Economic Progress (1992) explored how inventions and institutions interacted throughout history. The Gifts of Athena: Historical Origins of the Knowledge Economy (2002) and A Culture of Growth: The Origins of the Modern Economy (2016) deepened this analysis, distinguishing between propositional knowledge (understanding why things work) and prescriptive knowledge (knowing how to make them work). The Enlightened Economy: An Economic History of Britain, 1700–1850 (2010) synthesized these themes into a sweeping narrative of how the Enlightenment ideals of openness, curiosity, and empiricism helped catalyze industrial progress.
As Mokyr points out, a society needs all three ingredients for growth: the accumulation of useful knowledge, the capability to transform ideas into tangible production, and the cultural openness to embrace change. These conditions did not align until the Enlightenment era, when Western Europe began to institutionalize curiosity and reward experimentation. As Deirdre McCloskey and others have shown, Britain’s Industrial Revolution was as much moral and cultural as material, as it celebrated innovation as a virtue rather than a threat. Mokyr’s work complements this view, showing that without a society willing to tolerate dissent, fund experimentation, and protect property rights, no amount of technical genius could have produced industrialization.
Crucially, Mokyr identifies the diffusion of knowledge as the linchpin of growth. The printing press, the rise of scientific societies, and a competitive yet pluralistic political order all accelerated the circulation of ideas. Political pluralism, by preventing any single authority from suppressing inquiry, ensured that heretical thinkers found refuge elsewhere, a process referred to as “the Republic of Letters.” Mokyr’s economic history thus connects technological and economic progress to the broader liberal institutions of the West. In his view, it was not a single invention but a self-reinforcing ecosystem of knowledge and openness.
It is fitting that Mokyr quipped after receiving the prize when asked if he ever expected to win, “Are you kidding me? I’m an economic historian; we don’t win Nobel Prizes!” Yet his recognition underscores how indispensable historical reasoning is to economics. His work reminds us that the great questions of economic science—i.e. why growth happens, why it happens when it does, and why some societies sustain it—cannot be answered by data alone. They require narrative, institutional analysis, and an understanding of human culture. Mokyr’s body of work demonstrates that sustained progress is not an inevitable outcome of technology or capital accumulation, but the fragile product of societies that prize inquiry and protect freedom.
In celebrating Mokyr, the Nobel Committee has honored the tradition of economic history itself. He stands in the lineage of Adam Smith, who treated markets as moral and social systems, and of Douglass North, who emphasized institutions as the “rules of the game.”
Aghion and Howitt’s Work Modeling Growth and Creative Destruction
If Mokyr’s contribution is historical and qualitative, the work of Philippe Aghion and Peter Howitt is mathematical and theoretical. Together they developed the formal model of endogenous growth through creative destruction, which is an idea inspired by Joseph Schumpeter’s vision of capitalism as an evolutionary process of “industrial mutation.” Their seminal 1990 paper, “A Model of Growth Through Creative Destruction,” and the subsequent book Endogenous Growth Theory (1998, MIT Press), established a new framework for understanding how innovation drives long-term prosperity from within the system rather than as an external shock.
In the Aghion-Howitt model, firms invest in research and development in the hope of discovering better technologies. Successful innovators temporarily enjoy monopoly profits, but their success simultaneously renders existing technologies obsolete. This “business-stealing effect” forces incumbent firms to exit or reinvent themselves.
Far from being a flaw, this process of continual renewal is the very engine of progress. As they emphasize, creative destruction is not destruction for its own sake; it is the replacement of inferior technologies by superior ones, a cleansing mechanism that reallocates resources toward higher productivity uses. It accounts for the microeconomic turbulence within industries, even as the macroeconomy seems to grow steadily.
Their model elegantly balances the social benefits of innovation against its private costs. Because innovators cannot capture all the benefits their discoveries confer on society, there is a case for public support of research and education. But the model also warns against policies that shield incumbents from competition or attempt to “pick winners.” Governments that try to protect existing firms misunderstand the nature of growth. The process of creative destruction depends on openness and the freedom for new entrants to challenge the old. Innovation policy must simultaneously encourage entrepreneurship and allow failure, Aghion and Howitt note.
Creative destruction, of course, traces back to Schumpeter’s Capitalism, Socialism, and Democracy (1942), where he described capitalism as “the perennial gale of creative destruction.” Aghion and Howitt’s contribution was to formalize this intuition into a coherent model that could be tested, extended, and applied to real-world questions. Their framework now underpins much of modern growth theory and has influenced empirical research on everything from patent policy to industrial organization and inequality.
To illustrate, consider their metaphorical “innovation ladder.” Firms climb this ladder by investing in R&D, while others fall off as new technologies render them obsolete. The process is painful but necessary: without turnover, there is stagnation. Importantly, in societies with well-functioning institutions that secure property rights, foster open markets, and provide a safety net that enables risk-taking, firms that fall can get up again after they’ve been knocked down. In such systems, failure is not terminal; it is part of the learning cycle.
Aghion and Howitt’s insights also carry profound policy implications. Aghion has been outspoken about the dangers of protectionism and deglobalization, warning that they “are obstacles to growth because you need a big market to grow. Openness is a driver of growth; anything that gets in the way of openness is an obstacle.” In interviews about the economic impact of tariffs, he lamented the “dark clouds currently pushing for barriers to trade and openness,” emphasizing that tariffs and industrial policy threaten the very conditions necessary for innovation.
Speaking at the Committee’s announcement, Aghion also addressed contemporary fears about artificial intelligence. He acknowledges that AI may accelerate creative destruction but insists that its potential for growth is enormous if societies maintain good “competition policies.” The key, he argues, is not to resist automation but to prepare workers through education systems that teach adaptability: “At school we learn to learn.” History, he reminds us, is replete with examples of technological revolutions such as the steam engine, electricity, and information technology that provoked fears of mass unemployment. Yet in every case, the productivity gains eventually created more and better jobs. The same, he predicts, will hold for AI, if institutions remain flexible and open.
In recognizing Aghion and Howitt, the Nobel Committee reaffirmed the central insight of modern growth theory, that progress is endogenous. It arises not from fate or exogenous shocks but from human creativity operating within a competitive framework. Their model helps policymakers understand the dual imperative of supporting innovation while ensuring that markets remain contestable. When governments intervene to protect existing firms, they freeze the very churn that drives progress.
This message could not be timelier. As the laureates receive their prizes, the United States and other major economies are implementing the most protectionist and state-directed industrial policies since the 1930s—spending hundreds of billions of dollars to subsidize favored industries and erecting tariff barriers that stifle trade. The rhetoric of “strategic independence” may sound modern, but its logic is ancient mercantilism. The research honored by the Nobel Committee this year offers a rebuke to this approach. It reminds us that economic growth thrives under freedom, not control, and that innovation flourishes when governments protect property rights and competition rather than try to pick winners.
The Broader Meaning of the Prize for the Field of Economics
This is a deeply satisfying Nobel Prize for those who emphasize economic theory, markets, openness, and the power of human ingenuity. The laureates’ work underscores that economic progress depends on two intertwined forces: the institutions that nurture and diffuse knowledge and the process that continually reinvents the economy through creative destruction. Mokyr provides the historical and cultural foundation; Aghion and Howitt provide the mathematical and theoretical framework. Both perspectives converge on the same conclusion: societies that welcome innovation and tolerate disruption will prosper, while those that cling to protection and privilege will stagnate.
This year’s Nobel is also a reminder of what economics, at its best, can be. It is not merely the science of measuring short-term interventions or estimating causal effects. It is a grand inquiry into how human societies create wealth, freedom, and progress.
Mokyr, Aghion, and Howitt remind us that these outcomes are not guaranteed; they rest on institutions built by fallible human beings and shared beliefs about the value of knowledge and competition. Their research points us back to first principles: that prosperity arises from the freedom to think, to build, to fail, and to try again.
As policymakers around the world grapple with slow productivity growth and rising populism, they would do well to revisit the insights of these laureates.
Suggested Readings
Mokyr:
The Intellectual Origins of Modern Economic Growth
Aghion and Howitt:
A Model of Growth Through Creative Destruction
Research and Development in the Growth Process