Mokyr, Aghion & Howitt (2025): Why Growth Keeps Going — and Why It Might Stop

The Puzzle of Sustained Growth

For most of human history, economic growth barely existed. Living standards in 1700 were not dramatically different from those in ancient Rome. Inventions happened — the watermill, the printing press, gunpowder — but they never produced sustained, accelerating improvement in how people lived. Each burst of innovation eventually fizzled out.

Then something changed. Starting around 1750, economic growth took off — and it never stopped. In the past 275 years, income per capita in the leading economies has increased more than thirtyfold. Life expectancy doubled. Poverty plummeted. This extraordinary transformation is the single most important fact in economic history.

But why didn’t it stop? Every previous innovation wave had petered out. What made the Industrial Revolution different? And what keeps the growth engine running today?

The 2025 Nobel Prize honored three economists who answered these questions from complementary angles. Joel Mokyr explained the historical prerequisites — why sustained growth finally became possible. Philippe Aghion and Peter Howitt built the mathematical engine — a formal model of how creative destruction produces growth that feeds on itself.

Mokyr: Why This Time Was Different

Joel Mokyr is an economic historian who asked the deepest question about growth: why did innovation become self-sustaining in Europe after 1750, when it had always fizzled out before?

Previous civilizations had impressive innovations. China invented paper, printing, gunpowder, and the compass. The Islamic world made breakthroughs in mathematics, optics, and medicine. Ancient Rome had engineering marvels. But none of these led to sustained growth. Innovation was sporadic, haphazard, and eventually ran out of steam.

Mokyr’s answer: the Enlightenment changed the relationship between knowledge and practice.

Before the Enlightenment:

• Innovation was based on trial and error — tinkerers and craftsmen discovered things that worked, but they didn’t understand why they worked
• Knowledge was tacit — embedded in individual skills, guild secrets, and craft traditions. It was hard to transmit, hard to improve systematically, and easy to lose
• There was no feedback loop between understanding nature and improving technology. A blacksmith might discover a better way to forge steel, but without understanding the chemistry of carbon and iron, the improvement couldn’t be generalized or built upon
• Innovation depended on luck and individual genius. When the genius died or the guild declined, the knowledge could vanish

After the Enlightenment:

• A new intellectual culture emerged that valued understanding — not just knowing that something works, but knowing why it works
• This created what Mokyr calls “useful knowledge” — a growing body of systematic, communicable understanding of natural phenomena
• Crucially, a dialogue emerged between propositional knowledge (science — understanding nature) and prescriptive knowledge (technology — knowing how to make things). Science informed technology; technology posed questions for science. Each advance in one domain accelerated advances in the other
• Knowledge became cumulative: because it was systematic and communicable, each generation could build on the last. Innovation could compound rather than stagnate
• An “industrial enlightenment” — a culture of open inquiry, scientific societies, public lectures, and published findings — created institutions that sustained the feedback loop

Why Europe? Mokyr argues it wasn’t inevitable. Europe’s fragmented political structure meant that intellectual freedom could survive — if one kingdom suppressed new ideas, thinkers could move to another. Competition among states created incentives to adopt useful innovations. The Republic of Letters — a pan-European network of intellectuals — spread ideas faster than any single state could suppress them.

The key insight: The Industrial Revolution didn’t sustain itself through any single technology. It sustained itself because the process of innovation had changed. Knowledge was now organized, cumulative, and self-reinforcing. This is why growth after 1750 didn’t peter out — and why the pace of innovation accelerated rather than slowed.

Aghion and Howitt: The Mathematics of Creative Destruction

While Mokyr explained why sustained growth became possible, Philippe Aghion and Peter Howitt explained how it works — and built a formal mathematical model that captured the engine of growth with precision.

Their starting point was an old idea from Joseph Schumpeter: capitalism grows through creative destruction. New products, new firms, and new technologies constantly displace old ones. The automobile destroyed the horse-and-buggy industry. The smartphone destroyed the camera, the GPS device, the MP3 player, and the alarm clock — all at once. Netflix destroyed Blockbuster. Each innovation creates value by destroying what came before.

Before Aghion and Howitt, growth theory (including Romer’s endogenous growth model from 1990) treated innovation as additive — new products are added to existing ones, and the economy gets richer because there are more varieties. But this misses something fundamental: growth often comes from replacement, not addition. The new doesn’t just join the old — it kills it.

The Aghion-Howitt model (1992):

• Firms invest in R&D because successful innovation brings temporary monopoly profits — you’re the only one with the new technology, so you can charge premium prices
• But your monopoly is temporary. Eventually, a competitor innovates and displaces you — exactly as you displaced the previous leader. This is creative destruction
• The growth rate depends on how much the economy invests in R&D, which depends on the expected profits from innovation, which depend on the size of the quality improvement and how long the monopoly lasts
• Growth follows a quality ladder: each innovation improves upon the previous generation of products, climbing one rung at a time. The economy grows not because there are more products, but because products get better

Key results:

• Growth is endogenous: The rate of technological progress is not an external force — it results from deliberate investment decisions by firms and entrepreneurs
• Competition has an inverted-U effect on innovation: Too little competition means monopolists have no incentive to innovate (they’re already dominant). Too much competition means profits are too thin to fund R&D. Innovation is highest at intermediate levels of competition — a finding confirmed by extensive empirical research
• Incumbents resist innovation: Established firms have an incentive to block new technologies that would destroy their market position. Growth requires institutions that prevent incumbents from stifling competition — antitrust law, patent limits, open entry
• Creative destruction creates losers: Workers in displaced industries lose their jobs. Firms with obsolete technology go bankrupt. This creates political pressure to block innovation — tariffs, regulations, lobbying by incumbent industries. If this pressure succeeds, growth slows or stops
• Social vs. private returns diverge: Innovators capture only part of the value they create (the rest spills over to consumers and future innovators). But innovators also destroy value held by incumbents — a cost they don’t bear. The net effect can go either way: society might underinvest or overinvest in R&D, depending on the balance

The Complete Picture: History Meets Theory

Mokyr and Aghion-Howitt address the same phenomenon from different angles:

• Mokyr explains the historical conditions that made sustained innovation possible: the Enlightenment, the dialogue between science and technology, institutions that protected intellectual freedom, and a culture of open inquiry
• Aghion and Howitt formalize the mechanism: firms invest in R&D seeking monopoly profits, successful innovation displaces incumbents, the threat of being displaced motivates further innovation, and growth continues as long as the process isn’t blocked

Together they deliver a powerful message: sustained economic growth is not automatic. It requires specific institutional conditions — open competition, protection of new entrants, investment in science, and tolerance for the disruption that creative destruction inevitably brings. Block any of these, and growth stalls.

As Nobel Committee Chair John Hassler stated: “The laureates’ work shows that economic growth cannot be taken for granted. We must uphold the mechanisms that underlie creative destruction, so that we do not fall back into stagnation.”

Their 2025 Nobel Prize was awarded to Mokyr “for having identified the prerequisites for sustained growth through technological progress” and jointly to Aghion and Howitt “for the theory of sustained growth through creative destruction.”

Explain It to a Child

Imagine a race where everyone is running, but the track keeps being rebuilt by the runners themselves. Each runner invents a faster pair of shoes. But here’s the twist: every time someone invents faster shoes, the old shoes become worthless. The runner who wore them falls behind unless they invent something even better. That’s “creative destruction” — Aghion and Howitt showed that this endless race of replacing old things with better things is what makes economies grow. But why does this race keep going instead of everyone getting tired and stopping? Mokyr looked at history and found the answer: a long time ago, people started writing down not just what works but why it works. Once you understand why, you can keep improving — each discovery leads to the next. Before that, inventions were like lucky guesses that couldn’t be repeated. After that, invention became a system that feeds itself. Together, their message is: growth keeps going only if we keep the race fair (don’t let the big companies block new inventions) and keep investing in understanding why things work (that means science and education).