The 2025 Nobel Prize in Economics and the Renewed Significance of Joseph Schumpeter’s Vision
- SC Editorial Team
- Nov 24
- 4 min read
Updated: Nov 27
On October 13, 2025, the Royal Swedish Academy of Sciences awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Joel Mokyr, Philippe Aghion, and Peter Howitt “for having explained innovation driven economic growth” (Royal Swedish Academy of Sciences, 2025).
Joel Mokyr received half the prize “for having identified the prerequisites for sustained growth through technological progress,” while Philippe Aghion and Peter Howitt shared the remainder “for the theory of sustained growth through creative destruction.” For readers of Schumpeter Circle, this year’s prize is especially meaningful as it recognizes a body of work that both clarifies and formalizes Joseph A. Schumpeter’s most influential ideas about innovation, structural transformation, and long-run growth: "creative destruction". Accordingly, the 2025 prize can be interpreted as the strongest institutional affirmation to date of Schumpeter’s vision of economic development: Mokyr’s work explains the historical conditions that enable sustained innovation; Aghion and Howitt’s model explains the mechanism that transforms innovation into long-run growth.
Specifically, although “occasional discoveries and inventions” appeared throughout human history, the Academy noted that such breakthroughs “cannot on their own explain persistent economic growth” (Royal Swedish Academy of Sciences, 2025). Mokyr’s work identifies the deeper foundations that allowed technological progress to become cumulative rather than isolated, as he argues that societies must possess an expanding base of “useful knowledge,” institutional openness, scientific norms that reward inquiry, and the mechanical skill needed to implement new ideas (Mokyr, 2009). In this respect, Mokyr’s findings build directly on Schumpeter’s distinction between invention and innovation. Mokyr provides the historical and institutional explanation for why these combinations began to proliferate in some societies but not others, such as the Industrial Revolution, which marked a turning point once knowledge accumulation became systematic and socially embedded. In kind, Joseph Schumpeter (1934) emphasized that economic development depends on the successful application of new combinations, not on the mere presence of new ideas.
The other half of the award recipients - Philippe Aghion and Peter Howitt - were celebrated due to the manner in which they transformed Schumpeter’s most famous conceptual insight into a rigorous economic model. Their framework, first introduced in 1992, demonstrates how growth is sustained through continuous waves of innovation in which “newer technologies replace older ones” (Aghion & Howitt, 1992).
The Nobel committee summarized this mechanism by noting that “growth can be sustained through a continuous chain of innovations” (Royal Swedish Academy of Sciences, 2025).
This model is perhaps the clearest mathematical expression of Schumpeter’s (1942) insight that capitalism evolves through creative destruction, a process whereby entrepreneurial breakthroughs displace incumbents and reshape the economic landscape. Aghion and Howitt’s work brings this evolutionary dynamic inside the formal structure of growth theory. Rather than treating technological progress as something that arrives from outside the system, their model explains how firms, through R&D and competition, drive the process from within. The Academy highlighted this point directly, noting that “innovation is a key factor behind rising living standards,” and that the work of the laureates provides a theoretical structure for this central fact (Royal Swedish Academy of Sciences, 2025).
Schumpeter’s original writings argued that capitalist economies are defined by discontinuity, entrepreneurial action, and the replacement of old structures by new ones. The Nobel committee’s scientific background document echoes this directly, observing that “technological progress has accounted for most of the increase in living standards over the past two centuries” (Royal Swedish Academy of Sciences, 2025). Schumpeter saw this long ago, but lacked the empirical and theoretical tools that modern economists now possess. Thus, the Nobel committee’s recognition can be seen not only as a tribute to three economists, but as an endorsement of the broader Schumpeterian approach that places innovation, disruption, and institutional structure at the center of economic analysis.
The world in 2025 faces rapid transformations driven by artificial intelligence, digital platforms, green technologies, and biomedical breakthroughs. These shifts illustrate precisely the kind of economic dynamics that Schumpeter theorized: waves of innovation that restructure entire sectors, reward new entrants, and displace established firms. If “technological progress has accounted for most of the increase in living standards,” as the Academy states, then any society seeking broad-based prosperity must focus on the institutions, knowledge systems, and competitive conditions that allow innovation to flourish. Mokyr’s historical evidence and Aghion and Howitt’s theoretical framework together provide a roadmap for understanding why some economies adapt successfully to such shifts while others fall behind. For policymakers, this reinforces the importance of environments that encourage experimentation, ease entry of new firms, and support scientific and technical education -- in other words, very "Schumpeterian" at their core mechanisms.
The 2025 Nobel Prize in Economic Sciences is a landmark recognition of an intellectual tradition that began with Schumpeter’s early insights into innovation, entrepreneurship, and economic transformation. Joel Mokyr clarifies the conditions that make innovation self-sustaining, whereas Philippe Aghion and Peter Howitt explain the mechanism that turns that innovation into long-run growth. Together, their contributions form a modern, unified, and empirically grounded expression of the Schumpeterian vision: that economies develop not through smooth and incremental adjustments, but through cycles of creative destruction driven by new ideas, new firms, and new knowledge - a concept that is increasingly vital in this time of rapid technological development.
References
Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica, 60(2), 323–351.
Mokyr, J. (2009). The enlightened economy: An economic history of Britain 1700–1850. Yale University Press.
Royal Swedish Academy of Sciences. (2025). The Prize in Economic Sciences 2025: Scientific Background.
Schumpeter, J. A. (1934). The theory of economic development. Harvard University Press.
Schumpeter, J. A. (1942). Capitalism, socialism and democracy. Harper & Brothers.
