The 2025 Nobel Prize in Economics has been awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for their “contributions to understanding innovation-driven economic growth.” Among them, Aghion and Howitt were honored for their work on how sustained growth can arise through “creative destruction.” However, if Joseph Schumpeter could see how his concept of creative destruction has been repackaged as a theoretical justification for government intervention, he would be rolling in his grave.
The “father of innovation economics” coined the term not to defend state activism, but to describe capitalism’s inner vitality—its ability to renew its economic structure from within. Aghion and Howitt, however, wrapped Schumpeter’s insight in elegant equations and transformed it into “evidence” that markets fail and governments must correct them. In France, this logic has even been used to legitimize policies that have driven national debt to record highs. What they call “developing Schumpeter’s theory” is, in truth, a creative betrayal of it.
Two Faces of Creative Destruction
In their 1990 paper “A Model of Growth Through Creative Destruction,” Aghion and Howitt claimed to be the first to formalize Schumpeter’s idea. In their equations, creative destruction became a computable “engine of growth”: firms invest labor in R&D, innovations occur randomly following a Poisson process, each innovation lowers production costs, and innovators earn monopoly rents—until the next innovation “destroys” them.
This looks sophisticated, but it reduces Schumpeter’s vision to cost accounting. Innovation ceases to be an act of entrepreneurial adventure and becomes a mechanical output of R&D spending. “Destruction” is no longer the organic turnover of old technologies, but an “externality” to be adjusted by subsidies and taxes. Aghion even calculates that markets produce “too much or too little innovation”—and concludes that government must intervene.
In Capitalism, Socialism, and Democracy (1942), Schumpeter defined creative destruction as the core mechanism of capitalist evolution. Entrepreneurs, by recombining existing factors of production in new ways, continually revolutionize the economic structure from within—destroying old industries and creating new ones. For Schumpeter, destruction was never the goal but a necessary part of creation.
“Capitalism, then,” he wrote, “is by nature a form or method of economic change and not only never is but never can be stationary.” Destruction simply marks the leap from an old combination to a new one. Without it, there would be no Industrial Revolution, no electrical age, and no digital economy.
Schumpeter never saw destruction as a loss, but as capitalism’s greatest strength—its mechanism of self-renewal. The “new combinations” of production are not created from nothing, but from the rebirth of existing resources. Innovation is not ex nihilo creation, but the rediscovery and recombination of what already exists. Ford’s assembly line didn’t invent steel or rubber; it combined standardized parts, conveyor belts, and division of labor to turn cars from luxury goods into products for the masses.
Economic growth, Schumpeter argued, comes from “internal, self-generated change.” Development does not rely on external injections but on the reactivation of internal factors. When old technologies are replaced, resources are not wasted—they are liberated and reallocated to more productive uses.
Monopoly profits, for Schumpeter, were not signs of market failure but the prize for innovation. Aghion laments the “static inefficiency” of monopoly, while Schumpeter saw it as the entrepreneur’s reward for risk-taking. Entrepreneurs innovate precisely because they expect a temporary monopoly, that is, in the sense of being the single seller.
From Creative Destruction to Destructive Intervention
From his mathematical models, Aghion derived a series of policy “prescriptions” that Schumpeter would have rejected outright. He argues that creative destruction leads to unemployment and social dislocation, so the state must cushion the shock with welfare programs and unemployment insurance. This may sound humane, but it puts the brakes on innovation. Firms reluctant to pay high dismissal costs will avoid risky technologies, while workers with generous safety nets have less incentive to learn new skills.
Schumpeter warned that “capitalism’s vitality depends on entrepreneurs willing to take risks.” The welfare state undermines precisely that spirit. France’s youth unemployment rate, which has hovered around 20 percent—well above the EU average—is the result of overprotection that discourages firms from hiring and young people from striving.
Aghion also calls for government subsidies for “green innovation” and DARPA-style agencies to “target breakthrough technologies.” But Schumpeter would have asked: what makes bureaucrats more capable than entrepreneurs at deciding what to innovate? Market innovation is guided by consumer demand; government innovation is guided by political discretion. The former risks private capital; the latter gambles with public money. When the entrepreneur fails, he pays the price; when the bureaucrat fails, everyone else does.
Aghion’s “inverted-U” innovation curve claims that “moderate competition” maximizes growth, so he urges regulators to break up monopolies. But this reverses cause and effect: monopoly is not the enemy of innovation, but often its result. When the US Department of Justice sought to break up Microsoft, it assumed bureaucrats understood innovation better than the market itself.
As a French economist, Aghion is a frequent guest in President Emmanuel Macron’s inner circle. During Macron’s 2017 campaign, he served as a key member of the economic advisory team that shaped the policy framework. And the results? After eight years of governance, France’s debt-to-GDP ratio has risen from 98 percent in 2017 to 115.6 percent in 2025. The economy has entered a vicious cycle of rising debt, stagnating growth, and faltering innovation. GDP growth has fallen from 2.3 percent to just 0.64 percent, turning France into a “high welfare, high tax, low growth” laggard of Europe. If Schumpeter could see this, he might sigh: “This is not capitalism—it is interventionism dressed in the costume of innovation.”
The Triumph of Mathematics and the Collapse of Thought
Aghion’s differential equations and stochastic models make creative destruction look “scientific,” but they strip away Schumpeter’s most profound insight:
- Innovation is a subjective act of entrepreneurial daring, not an objective optimization problem;
- The market is a spontaneous discovery process, not a target of regulation;
- Destruction is the prelude to creation, not a disease to be cured
Schumpeter once predicted that “capitalism would perish from overregulation and drift toward socialism.” Aghion’s policy prescriptions seem to fulfill that prophecy. The more “precise” the model, the further it drifts from reality; the more “benevolent” the policy, the more it crushes market vitality.
Creative destruction, in truth, destroys nothing essential—it merely allows the old to exit with dignity so the new can rise. The real danger lies in the attempt to stop this process. Mathematics has not made Aghion’s economics more insightful; it has only made it more sterile. His Nobel Prize marks the triumph of mathematical formalism—but the failure of economic thought.
