The Driving Force Behind Progress: Lessons from the 2025 Nobel in Economics
About two hundred years ago, something changed: knowledge began to accumulate, innovations followed one another, and the world entered an era of sustained growth. That mystery (why humanity went from stagnant routine to continuous progress) was the central theme of the 2025 Nobel Prize in Economics, awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for “explaining innovation-driven economic growth.”
To understand their contribution, consider the standard Solow model of economic growth. According to Solow, simply adding more machines, factories, or physical capital cannot generate permanent improvements in living standards. Because capital faces diminishing returns, the economy eventually reaches a steady state in which income per person stops growing. In Solow’s framework, only technological progress can sustain long-run growth. Yet technology in this model is treated as exogenous. The model tells us that technological progress must matter, but not where it comes from or why it began to accelerate.
A simple intuition is offered by the production possibility frontier (PPF). The PPF shows the maximum output combinations an economy can produce with existing resources and technology. For most of human history, societies operated on this frontier. Economic change meant shifting resources from one activity to another, not expanding what was possible. Solow formalized this constraint: without innovation, no amount of capital accumulation can push the frontier outward. If humanity escaped stagnation, then something must have fundamentally altered the pace at which new ideas appeared and became useful.
This is precisely the mystery that Joel Mokyr, awarded half of this year’s prize, has spent decades studying. Mokyr argues that the Industrial Revolution was not only a mechanical revolution but a revolution of ideas. Before the eighteenth century, artisans knew how to make things, but not why they worked. He calls this prescriptive knowledge. Scientific understanding, or propositional knowledge, advanced separately, often with little connection to practice. Modern growth began when Europe created incentives that linked these two forms of knowledge. Institutions such as the Royal Society encouraged experimentation, measurement, open debate, and replication. Artisans learned from scientists, and scientists learned from artisans. This feedback loop produced a self-sustaining engine of useful knowledge.
Historical differences in incentives help explain why this happened in Europe rather than China or the Middle East. In the podcast “Scientific Sense”, Mokyr noted that Chinese and Muslim intellectual traditions tended to venerate classical authorities, creating conservative environments less welcoming to radical experimentation. Europe was more decentralized. Competing states, competing churches, and competing universities created an ecosystem where dissent was tolerated and talented thinkers could relocate when threatened. Religious competition, such as the Jesuit investment in education, contributed to higher human capital.
While Mokyr explains why technological progress became self-sustaining, Aghion and Howitt, explain how this progress translates into economic growth. Their growth model, introduced in 1992, formalized Joseph Schumpeter’s concept of creative destruction. In their framework, companies innovate to earn temporary monopoly profits. Each innovation displaces older technologies, creating winners and losers in a continuous process of renewal. This creative destruction is the engine of sustained growth. It also shows why growth is always contentious: innovation destroys old rents. When entrenched interest groups manage to block new ideas, growth slows or stops.
The Aghion-Howitt model also highlights the delicate balance between incentives and policy. Innovation requires allowing old firms to die and new ones to enter. But it also requires allowing entrepreneurs to capture enough of the rewards of their discoveries. Too much regulation or protection of incumbents weakens competition.
Taken together, the work of this year’s Nobel laureates offers a powerful lesson. Sustained growth is not automatic. It requires a society that protects the freedom to think, to criticize, to experiment, and to compete. Mokyr warns that restrictions on academic freedom, censorship, or political hostility toward open debate can slow the accumulation of useful knowledge. Aghion and Howitt warn that excessive industrial policy that protects incumbents can freeze creative destruction. Economic history shows that stagnation is humanity’s default condition. The last two centuries are the exception.
The 2025 Nobel Prize is therefore more than an academic recognition. It is a reminder that prosperity rests on openness, competition, and institutional environments that reward experimentation rather than obedience. Modern growth began when incentives aligned in favor of new ideas. It will continue only if those incentives are preserved.
Juan José Casillas Quezada | Research Assistant | jcasillasquez@miners.utep.edu
The views represented here are those of the author and do not represent the position of The University of Texas at El Paso or the Center for Free Enterprise.
