What produces economic growth

Setting aside the Restoration, economic growth results from "prescriptive knowledge and propositional knowledge."

The Nobel Nods at Economic Growth

Joel Mokyr, Philippe Aghion and Peter Howitt explain how knowledge and freedom combine to produce prosperity.

By David R. Henderson

Oct. 13, 2025

https://www.wsj.com/opinion/the-nobel-nods-at-economic-growth-d3260a73?st=L5suJD&reflink=desktopwebshare_permalink

The most important issue in economics is growth. That’s why Monday’s announcement of three winners of the 2025 Nobel Memorial Prize in Economic Sciences is heartening. The Nobel committee awarded it to three economists “for having explained innovation-driven economic growth.” The winners are Dutch-born American-Israeli Joel Mokyr of Northwestern University and Tel Aviv University, Frenchman Philippe Aghion of the Collège de France, Insead in Paris and the London School of Economics and Political Science, and Canadian Peter Howitt of Brown University. Mr. Mokyr won half of the approximately $1.16 million award, while Messrs. Aghion and Howitt will share the other half.

Mr. Mokyr is an economic historian who has focused on understanding why we got the so-called hockey stick of human prosperity, a metaphor in which the long, flat shaft represents centuries of economic stagnation before the Industrial Revolution and the short, sharp blade represents sustained growth in gross domestic product and in GDP per capita in the U.S. and much of Europe after the revolution. Messrs. Aghion and Howitt have focused on theoretical modeling of economic growth, enabling us to understand how various factors interact to bring about growth. Their work complements Mr. Mokyr’s.

Mr. Mokyr argues that two factors were responsible for the 19th-century Industrial Revolution that kicked off growth: prescriptive knowledge and propositional knowledge. Prescriptive knowledge is about the “how”—the knowledge of things like recipes, drawings, instructions, procedures, and techniques. Propositional knowledge, which is more fundamental, is about the “what” and “why”: It explains why something works.

With detailed study of the interaction between science and practical know-how, Mr. Mokyr showed the importance of both kinds of knowledge. He was able, for instance, to explain why Britain grew. One important factor—the propositional part—was “the Republic of Letters” during the 17th and 18th centuries, an international community in Europe and the Americas that exchanged scientific information. The other factor—the prescriptive part—was the large number of skilled artisans and engineers in Britain. Also important was that Britain was an open society in which people were free to innovate. By contrast, China, a technological leader in earlier centuries, didn’t achieve sustained economic growth. China’s government, the Nobel committee noted, halted geographical exploration in the 1430s, cutting its people off from the rest of the world.

Messrs. Mokyr, Aghion, and Howitt all believe in the importance of what Austrian economist Joseph Schumpeter called “creative destruction.” When some firms innovate, they create new industries and new products, in the process destroying or replacing old ones. A classic example is Henry Ford’s Model T destroying the market for horse-drawn carriages. Mr. Mokyr calls the Industrial Revolution “the mother of all creative destruction.”

In the early 1990s, Messrs. Aghion and Howitt, who weren’t satisfied with existing mathematical models of economic growth, built a model in which creative destruction was a crucial component. The father of modern economic growth models was the late Massachusetts Institute of Technology economist Robert Solow, who won the Nobel Prize in 1987 for the growth model that he had produced in the 1950s. In Solow’s model, the big driver of growth was technological change, but it was exogenous. Translation: Nothing in his model explained why technological change happened. Messrs. Aghion and Howitt wanted to do so, and they succeeded.

Economists after Solow, particularly Robert Lucas and Paul Romer, had models of economic growth with endogenous technological change. Messrs. Aghion and Howitt contributed to this body of research with their work on creative destruction. A firm that creates a new product or comes up with a cheaper way of producing an existing product has a strong incentive to do so if the firm gets a patent that allows it to earn monopoly profits for the life of the patent. Other firms are still free to come up with new products, and so the temporary monopolies that patents give don’t kill economic progress.

Each year, I wait with trepidation to see who has won the Nobel Prize in economics. Many economists seem to want the prize to be given for complex models that don’t matter much. When I saw who won it on Monday, I was happy. Economic growth is the reason extreme poverty has become much rarer around the world, life expectancy has increased dramatically, and most Americans now own many things that were unobtainable luxuries decades ago. All three winners recognized that because economic growth is crucial, we need to understand how we got it and how we can keep it.

Mr. Henderson is a research fellow with Stanford University’s Hoover Institution and editor of the Concise Encyclopedia of Economics.