Last week’s Nobel Prize in economics was awarded for research in innovation-driven economic growth, half to economic historian Joel Mokyr (Northwestern University) and half to Philippe Aghion (College de France & London School of Economics) and Peter Howitt (Brown University). This award is near and dear to my heart and mind for multiple reasons.

The Nobel committee cited Mokyr “for having identified the prerequisites for sustained growth through technological progress” and Aghion & Howitt for “the theory of sustained growth through creative destruction”. The prize honors two complementary strands of research: historical and institutional foundations of technological progress, and formal economic modeling of how innovation fosters long-run growth by displacing older technologies. Both strands draw deeply on important work from Joseph Schumpeter, and both are relevant to what’s happening right now in electricity technology and regulation.

Why This Prize Matters

For most of human history, economies grew slowly or stagnated. Growth was episodic. But starting with the Industrial Revolution, and especially in the 19th and 20th centuries, some economies began to achieve sustained, compounding growth. The laureates’ work helps explain why that took off, and why it is not inevitable.

Their work restores technological change and innovation to the center of growth theory, not as a residual or external factor, but as something endogenous: a process that institutions can influence. The Nobel committee stressed that new technology continuously replacing old technology lies at the heart of this growth process. The research highlights how innovation-driven growth does not happen automatically, but instead requires certain institutional settings: openness to ideas, supportive science-technology systems, competitive markets, the right incentives for innovation, and importantly, the capacity to let older firms or technologies give way to newer ones (creative destruction) rather than entrenching incumbents invested in the status quo.

In a world facing energy innovation, clean tech, digitalization, AI, and structural economic change, the frameworks developed by these laureates provide tools for thinking about how to facilitate innovation, manage disruption, and sustain growth. Understanding how innovation drives growth helps us understand how to design policy so that the energy-transition era we are in the middle of creating can yield widespread prosperity and dynamism.

Joel Mokyr illuminated how this transformation required more than capital and labor — it required scientific and technical competence, culture open to change, and institutional frameworks that encouraged experimentation and substitution. Philippe Aghion and Peter Howitt formalized the process: new products and production methods continuously replace older ones (creative destruction), investment in innovation is shaped by incentives and market structure, and growth is an endogenous process. Together, their research transforms the notion of economic growth from a sort of “given” or exogenous factor into a dynamic system of discovery, displacement, entrepreneurship, competition, and institutions.

Energy Innovation and Economic Growth

Economic growth, in Joel Mokyr’s interpretation, is not the mere accumulation of capital or exploitation of resources but the systematic harnessing of useful knowledge to transform energy and materials into productive power. Across centuries, energy innovations, or the ability to convert natural forces into mechanical work more efficiently and flexibly, have driven every major surge in productivity and prosperity. Energy technologies sit at the center of industrial progress: they are the physical expression of humankind’s expanding command over nature through knowledge.

For most of history, economic output was constrained by limited and unreliable energy sources—human and animal labor, water, and wind. Pre-industrial economies depended on the biosphere’s energy flow, fixed by geography and climate. Because energy supply could not scale independently of nature, production expanded mainly through population growth or land conversion. As Mokyr notes, this “energy ceiling” defined the Malthusian world. Productivity gains from tools or organization could not sustain growth indefinitely; without breakthroughs in power generation, the economy always returned to subsistence.

In The Lever of Riches (1990), Mokyr identified the steam engine as the innovation that broke this trap. It was not simply a new machine but a conceptual leap—the deliberate conversion of heat into mechanical work through scientific understanding. Steam made power abundant, controllable, and portable, allowing factories to operate anywhere coal was available and to run independent of nature’s rhythms. Equally important, it established a feedback loop between science and technology: Watt’s improvements required precision engineering, while advances in thermodynamics refined the theory of efficiency. This interplay between scientific and practical knowledge—the “industrial enlightenment”—was the real engine of modern growth.

The result was a revolution in both energy intensity and productivity; the Industrial Revolution was as much an energy revolution as a mechanical one. Each subsequent wave of innovation refined that trajectory, finding new ways to transform energy into work with greater efficiency and flexibility. The transitions from coal to oil and electricity deepened the energy–technology nexus. Electricity, by separating energy production from use, enabled decentralization and new forms of industrial organization. The internal combustion engine extended this transformation to mobility, reshaping transport, logistics, and agriculture. These developments became the general-purpose technologies of the second industrial revolution—systemic innovations that multiplied productivity across the economy.

Throughout this history, energy innovation was never purely technical. It depended on institutions and culture—what Mokyr calls the “culture of improvement”. Britain’s eighteenth-century environment of open inquiry, patent protection, and commercial experimentation allowed ideas to circulate and inventions to evolve. This blend of scientific curiosity, decentralized experimentation, and tolerance for failure made sustained technological progress possible. Energy innovation was both a technological and an institutional revolution.

The twentieth century continued this pattern. Electrification, the petrochemical revolution, and nuclear power all reflected the same co-evolution of energy systems and knowledge systems. Each wave of progress extended society’s ability to transform energy with greater precision, flexibility, and insight. As the frontier shifts today—from mechanical to digital, from centralized to distributed, from fossil to renewable—the underlying dynamic endures: energy innovation expands the boundaries of what knowledge can achieve.

That insight bridges economic history and modern policy. The current transition toward more low-carbon, distributed, and digital energy systems mirrors earlier transformations in both scale and significance. Like the shift from waterwheels to steam, it demands not only new technologies but new institutions, infrastructures, and mental models. Mokyr’s lesson is clear: sustainable growth depends less on the resource itself than on the institutional capacity to innovate continuously—to combine scientific understanding, engineering skill, and social adaptability in the ongoing pursuit of mastery over energy.

In the end, energy innovation is the driver of economic growth, but Mokyr’s deeper message is epistemic. Societies prosper when they institutionalize learning about energy—when they make discovery, experimentation, and adaptation part of their collective character. The capacity to explore, test, and integrate knowledge across disciplines remains the true lever of riches.

The Schumpeter Connection

Both Joel Mokyr and Philippe Aghion & Peter Howitt build on Joseph Schumpeter’s vision of innovation and economic evolution, though they do so from very different directions. Mokyr writes as an economic historian of technological culture and institutions; Aghion and Howitt as theorists of dynamic, innovation-driven growth.

Schumpeter’s core idea was simple but revolutionary: innovation is the engine of economic development. He saw capitalism—what I prefer to call free enterprise—as an evolutionary process, always in motion, never at rest. Progress comes through what he famously called the “perennial gale of creative destruction,” where new technologies, products, and organizations displace the old. Innovation is intentional, not automatic; it is the work of entrepreneurs who combine resources, methods, and markets in new ways, setting off waves of technological and institutional change.

Mokyr takes that insight and asks a deeper question: why did this process of creative destruction take hold and persist? He agrees with Schumpeter that innovation, not capital accumulation, drives modern growth, but he shifts the focus from individual entrepreneurs to the institutions and cultures that make continuous innovation possible. In A Culture of Growth (1026), Mokyr argues that the decisive transformation in early modern Europe was the emergence of what he calls the “Republic of Letters”—a social network of scientists, artisans, and thinkers who valued open inquiry, empirical reasoning, and communication. In Schumpeterian terms, Mokyr historicizes the preconditions of entrepreneurship. He replaces the heroic inventor with a broader “epistemic network”—scientific societies, guilds, universities, and publishers—that sustained the culture of improvement. Innovation, in his account, is not only individual, it’s also systemic.

Aghion and Howitt took Schumpeter’s narrative model and turned it into formal theory. Their Endogenous Growth Theory (1992) embedded the idea of creative destruction into a dynamic economic model. In their framework, firms engage in R&D races; successful innovators enjoy temporary monopoly rents until they’re overtaken by the next wave of invention. Growth arises from this continuous process of creation and replacement. By formalizing Schumpeter’s vision, Aghion and Howitt transformed a metaphor about evolution into a rigorous, testable model of long-run growth. They also recast the Schumpeterian entrepreneur as the R&D firm—a decision-making agent whose investments drive the rate of innovation.

Mokyr and Aghion & Howitt thus illuminate two sides of the same process. Mokyr explains how the institutional and cultural foundations for innovation emerge and endure; Aghion and Howitt show how innovation operates within an incentive system once those foundations exist. Together they tell a complete Schumpeterian story: why societies innovate, how they sustain it, and what happens when they stop. Mokyr points us toward the institutional openness and knowledge exchange needed to keep discovery alive. Aghion and Howitt highlight the incentives and competition that keep it productive. Both remind us of Schumpeter’s enduring lesson: progress depends on our willingness to tolerate uncertainty, reward experimentation, and rebuild our institutions continually to keep creative destruction working in our favor..

This Schumpeterian Synthesis Applied to Electricity

The electricity sector is evolving from its industrial past into a more digital, decentralized future. Technologies like distributed energy resources, advanced power electronics, storage, electric vehicles, and AI are advancing faster than the regulatory institutions meant to govern them. Understanding how institutional reform can enable rather than restrain this transformation requires a Schumpeterian lens—one that views progress as continual renewal through innovation, creative destruction, and institutional evolution.

At its core, Schumpeterian growth theory describes progress as the ongoing replacement of old technologies and organizational forms by new ones—a process that is both dynamic and disruptive, reallocating capital, knowledge, and authority. In electricity, this means innovation cannot reach its potential if regulation protects incumbent arrangements such as rate-of-return models, vertically integrated utilities, and static market rules. As Aghion and Howitt show, long-run productivity gains require mechanisms that reward new entrants, allow old capital to depreciate, and align innovation incentives with social welfare.

But technological progress depends as much on culture as on incentives. Mokyr’s work reminds us that societies stagnate when they fail to build institutions that foster learning and experimentation, even when they possess advanced technology. The modern power sector must therefore cultivate a knowledge ecosystem that supports continuous innovation. Data are the twenty-first century’s “useful knowledge.” Regulators should treat grid and customer data as shared intellectual infrastructure—protected where necessary, but open enough to enable third-party innovation. Just as the Republic of Letters spread ideas across Europe, an open energy-data ecosystem can foster discovery, interoperability, and collective problem-solving.

Mokyr also emphasized that innovation thrives where diverse communities interact. In electricity, that means creating institutional pluralism—regulatory sandboxes, pilot programs, and stakeholder processes that invite DER aggregators, microgrids, and AI developers into the conversation. These forums become laboratories of learning, translating experimentation into policy evolution.

No innovation endures without legitimacy. Public trust in experimentation—especially in critical infrastructure—depends on transparency, reliability, and fairness. Regulators must therefore pair innovation with credible safeguards for reliability and equity, reinforcing the legitimacy of adaptive governance.

Aghion and Howitt, meanwhile, show how competition and entry drive innovation. In monopoly systems, incumbents have little reason to disrupt their own revenue models. Reform should therefore lower barriers to entry for new actors—allowing DER aggregators, storage operators, and microgrids to compete on equal footing with utilities in providing capacity, flexibility, and grid services. FERC Order No. 2222 captures this principle by opening wholesale markets to aggregated distributed resources, creating a structural pathway for creative destruction within the grid ecosystem.

Together, these insights outline the path toward a learning, adaptive electricity system: one that rewards discovery, shares knowledge, and welcomes experimentation while maintaining public trust. Energy transformation will succeed not by preserving the old equilibrium but by enabling the process of creative destruction that drives progress itself.

A Mokyrian Playbook for Electricity Dynamism and Evolution

This perspective recasts the ongoing energy transition as a problem of knowledge, institutions, and adaptability rather than of fuel substitution alone. In The Lever of Riches, Joel Mokyr showed that the Industrial Revolution began not because coal or steam were newly discovered, but because societies had learned how to turn “useful knowledge” into controllable power. What mattered was the capacity to experiment, measure, and iterate—to combine scientific understanding with artisanal skill inside institutions that rewarded learning. That pattern, not any particular technology, defined the emergence of sustained growth. The same logic applies now.

Today’s challenge is to create institutional conditions that allow knowledge about energy conversion, coordination, and control to evolve as freely as mechanical engineering did in the eighteenth century. Flexibility—the ability to match variable supply and demand through storage, digital controls, and responsive loads—is the modern equivalent of steam’s elastic power. Yet flexibility is a property of systems, not individual devices, and it depends on regulatory institutions that enable actors to experiment and share information. A modern Republic of Letters for energy would take the form of a Republic of Data: interoperable platforms, open access to grid information, transparent performance metrics, and regulatory processes that prize learning over procedural inertia. Flexibility also requires the freedom to establish markets, the human institution most conducive to flexibility, adaptation, and error correction.

Regulatory institutions themselves must become agents of innovation. Mokyr’s culture of improvement thrived because inventors could test, fail, and try again within a supportive social and legal framework that did not penalize experimentation. For today’s energy evolution and transformation, that means replacing static cost-of-service rules with adaptive mechanisms—performance-based regulation, pilot programs with clear evaluation criteria, and pathways for scaling successful experiments. It also means enabling markets that reward the discovery of new capabilities rather than the preservation of legacy assets. When entry is open and incentives are aligned with system value—whether through distributed resource participation, dynamic pricing, or transactive energy—the process of creative destruction that Schumpeter described can operate within the power sector itself.

The enduring lesson from Mokyr’s work is that progress flows from learning. The societies that grew rich were those that institutionalized curiosity, tolerated failure, and built feedback loops among science, engineering, and commerce. The energy transition will succeed by creating the institutional and informational architecture that lets millions of small innovations compound. When markets, regulation, and data systems combine to increase the rate at which we learn how to harness energy more intelligently, they reproduce the same dynamic that once turned steam into prosperity.

A Personal Note on the Nobel

I am more than a little invested in this Nobel and this set of ideas because Joel was my Ph.D. dissertation advisor, and continues to be a valuable colleague and beloved friend. I would not be half the economist I am if it weren’t for his guidance, his mentorship, his modeling of professional scholarship and compassionate behavior. Few people have contributed more to sound, excellent economic analysis than Joel has, and he does so with a wide-ranging scholarly virtuosity and an indelible sense of humor that I absolutely and completely treasure.

It’s taken me a week and a half to figure out what I wanted to say about his work and its importance. I’m kind of like Mr. Knightley in Emma, when he confesses his love to her and says “you know what I am, I cannot make speeches. If I loved you less I could talk about it more”. The way I honor Joel’s work and his influence on me professionally and personally is by communicating, using, and applying his ideas, every single day, in my own research and in the education/translational work I do with regulators and industry through the Institute for Regulatory Law & Economics at Northwestern University.

Others have written excellent essays about Joel’s Nobel; I recommend in particular Anton Howes, Brian Albrecht, and Kevin Bryan for your weekend reading.