Iceland has a population of 318,000, of whom 292,000 are native Icelanders. The native population speaks Icelandic, a language with a complex grammar similar to Old Norse. It has evolved little since the twelfth century. Icelandic is spoken by no one other than Icelanders.I'm actually surprised that Caplan makes such a crude argument, since he seems well aware of and not averse to honestly discussing the nature-nurture debate, the importance of IQ, and its large heritability. Clark's reply encapsulates the most important counterpoint: the quality of people matters as much as or more than their quantity. According to NationMaster, Iceland also ranks number one in Nobel Prizes per capita - followed by the notably low population states of Sweden, Switzerland, Denmark, and Norway. (Maybe we could amend Caplan's thesis to say that idea production is positively correlated to the Scandinavian population. The analogy would be to Milton Friedman's reply to the economist who said that there was no poverty in Scandinavia: "Interesting. There's no poverty among Scandinavians in America either.")
300,000 people is a very small number of people. Equivalent sized cities in the US are Anchorage, Alaska and Stockton, California.
We would on Caplan’s theory of population expect this isolated community to have about as much prospect as the Tasmanians of pre-industrial Australia.
Yet Iceland has maintained a vibrant local culture and is a notable presence on the international scene. Start with the film industry. The 300,000 people of Iceland produced 70 films (features, documentaries etc) between 2000 and 2010, in Icelandic! I recently saw one, Jar City, which was very well done.
Iceland also has maintained a substantial literary tradition. Halldór Kiljan Laxness won the Nobel Prize for Literature in 1955. Arnaldur Indriðason is an internationally successful crime writer. In music also we have Björk..
The 300,000 people of Iceland are enough to sustain a respectable university. Iceland is host to an innovative project to map the DNA of hundreds of inhabitants from many different families (Decode Genetics). It is also the home of CCP Games, the company that developed the large and successful game EVE Online.
And of course, it was wildly innovative in its banking arrangements.
If population size is so crucial to innovation and economic activity, how come we hear so much about these obscure Icelanders? (And please don’t tell me it because of their good economic management!).
Cities are of course more likely to be the scene of idea production than rural areas, so urbanization seems a more likely candidate for a positive correlation with it than mere population. But does anyone think that the world doesn't have enough or large enough cities? Even so, Lagos or Dhaka don't seem to be hotbeds of new technologies.