Chapter 2Demographics and Innovation

In this chapter, I will discuss the relationship between demographics and innovation. I will expound the three key demographic factors of innovation: the scale factor, the agglomeration factor, and the age factor.

Approximately 200 years ago, the English economist Thomas Malthus proposed the famous Malthusian theory of economic demography, which describes the following chain of logic:

Technological progress can generate a short-term increase in income per capita. However, the increased income soon results in population growth and lower agricultural productivity, which, in turn, eventually wipes out any gain in per capita income.

The Malthusian theory was a good approximation of the world economy before the onset of the industrial age. In agricultural societies, the rate of technological progress was slow, and slow improvement in productivity leads to an increased population but does not result in significant increases in per capita income. Therefore, until the Industrial Revolution, the general pattern was that the world population grew gradually while the per capita income stagnated.

Three hundred years ago, China's agriculture was the most advanced in the world; as a result, it could sustain a much larger population than Europe, which had roughly the same landmass. However, income per capita was not much higher than that of the rest of the world, hovering just slightly above the subsistence level. During the reign of the Kangxi and Qianlong ...

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