The 2025 Nobel Prize in Economics was awarded to scientists who explained how innovation and technological progress help societies become richer.
Half of the prize went to Joel Mokyr of Northwestern University in the US. The other half was shared by Philippe Aghion of the Collège de France in France and Peter Howitt of the London School of Economics.
“Over the past two centuries, the world has witnessed sustained economic growth for the first time in history. This has enabled countless people to escape poverty and laid the foundation for our prosperity,” the Swedish Academy of Sciences stated in its justification for this year’s prize.
“Laureates Joel Mokyr, Philippe Aghion, and Peter Howitt explained how innovation provides impetus for further progress.”
Last year, the award was given to Daron Acemoglu, James Robinson and Simon Johnson for roughly the same reason.
They explained why some countries grow rich and develop, while others remain stuck in the past, and why under dictatorships and autocracies the economy withers and only those in power get rich, while the transition to democracy increases the chances of the entire population to improve their lives.
Innovation alone is not enough
The award is particularly relevant now, as the world pins hopes on the latest artificial intelligence technologies for a quantum leap in development and prosperity comparable to the impact of the invention of the internet.
“Technology is rapidly evolving and impacting us all: new products and production methods replace old ones. This endless cycle is the foundation of sustainable economic growth, which, in turn, improves incomes and quality of life for people around the world,” notes the Swedish Academy of Sciences.
However, it was not always so.
In the past, important discoveries only temporarily improved life, and then the increase in prosperity always faded. Why?
Joel Mokyr answered this question, for which he received half the prize. He demonstrated that it’s not enough to find a new way to do something; it’s necessary to scientifically justify why it works.
And he explained the second difference between medieval and modern conditions: in order for innovations to replace one another in an endless cycle of improving life, society must be open to new ideas and ready for change.
What is “creative destruction”?
This is where development is hindered even today. As the Swedish Academy of Sciences notes, innovation threatens companies and industries in the “old economy” because it brings “creative destruction.”
It was for this concept that Philippe Aghion and Peter Howitt received the other half of the 2025 prize.
“In a 1992 paper, they constructed a mathematical model of so-called ‘creative destruction’: when a new, more advanced product enters the market, companies selling the old products suffer losses,” the academics write.
And here the relevance of the award is obvious.
Innovation is allowing the world to meet growing energy needs more cheaply and cleanly, but while some countries – most notably China – are rapidly electrifying and switching to renewable energy sources, others – most notably the United States under Donald Trump – are curtailing their “green revolution” in favor of supporting the traditional oil and gas industry.
“The laureates’ work demonstrates that economic growth is not a given. To avoid stagnation, the mechanisms underlying creative destruction must be supported,” said John Hassler, chairman of the award committee for the Economic Sciences Prize.
Not quite Nobel
The Economics Prize concludes Nobel Week, which traditionally takes place at the beginning of October.
Economics is a young science, and Alfred Nobel’s will makes no mention of it. A prize for it was established only after the Swedish central bank donated a large sum to the Nobel Foundation in 1968 to commemorate its 300th anniversary.
So, technically, the prize isn’t a Nobel Prize, but it is awarded at the same ceremony and by the same committee. It includes a cash prize of approximately $1 million and a specially designed gold medal.
The laureate is selected by the Swedish Academy of Sciences. It follows the same rules as when awarding outstanding work in other scientific disciplines.
