The classic work on how property rights leads to wealth is still Adam Smith’s The Wealth of Nations, written at the start of the industrial revolution and in the middle of an agricultural revolution. England went from over 80% agricultural workers in 1870 to only 30% in 1800, freeing up labor for the industrial revolution; this occurred largely through capital investments in land improvements, for example draining, marl, and lime (http://www.bahs.org.uk/26n1a1.pdf). Smith captures well the legal changes going on, and that he saw as encouraging capital investment, such as the decline of the guilds, the replacement of primogeniture and the complex system of tenancies in land with alienable fee simple ownership, and the resultant enclosure movement, in which commons were replaced by single proprietor control of land.
Roughly speaking, Japan and the rest of East Asia converted to Roman law (the law of Western Europe outside of England) between the mid 19th (Japan) and mid 20th centuries. The process Smith describes was also a partial Romanization of English law into what we now know as the modern common law. So all countries to successfully industrialize have done so under variations of the Roman or English common law, and the English common law itself borrowed quite a bit from the Roman substantive law. (Contrast to Roman procedural law, which is awful, but that’s another story).
The interaction of the decline of political property rights with the industrial revolution is complicated. On the one hand, political corporations such as the East India Company and the West Indies and American colonies were very important to the British economy at that time. Overseas trade provided timber, cotton, and many other industrial inputs. On the other hand, the decline of political property rights in land led to the alienable ownership and the decline of the guilds that Smith and the new capitalists championed.
I particularly commend Book 3 Ch. 3 and Book 4 Ch. 7 of Wealth of Nations which cover much of this, albeit from Smith’s Romanist view. Sadly, most people never get past the famous Book 1.
East Asian institutions are hard to compare, first because their population may have an IQ advantage that makes up for institutional handicaps, and second because we don’t really know what they were: at least here in the West our knowledge of their old legal systems is extremely poor, and they underwent radical Westernization in the late 19th and 20th centuries. Clark’s genetic theory can’t explain why Britain declined so rapidly after about 1870 from being the leader in industrialization and a globe-straddling empire to being just another of dozens of medium-sized industrialized countries today. Political and legal developments, in particular the Reform movement, can, but that is a topic for another day.
Apart from a few very useful graphs Clark’s work is rather poor and this theories are silly. He needs to learn far more about both evolution and law to form useful theories in those areas. See http://unenumerated.blogspot.com/2007/09/institutional-changes-precedent-to.html and http://unenumerated.blogspot.com/2007/08/why-industrial-revolution.html.
gwern, do you have reference(s) for Chinese “financial instruments and arrangements not exceeded until the 1500s in Europe”? Thanks in advance.