Markets, True and False: The Case of Yugoslavia

This paper will discuss the emergence and shortcomings of Yugoslav market socialism. The central theme is that markets without saleable property rights are an illusion. As Mises and Hayek have so clearly demonstrated, truly competitive markets require individual freedom and hence private property rights. Property rights are important because they help determine the actions individuals can take and the rewards that can be captured. It will be shown that although the Yugoslavs have approached a market-type economy, the lack of saleable claims to present values has tied workers to their firms. This constraint, together with the institution of workers’ management, has prevented true capital and labor markets from emerging in Yugoslavia. Hence, non- human and human capital tend to be mis-allocated. The significance of this paper lies in a further clarification of the rule of property rights in shaping incentives and behavior under socialism.

Volume 2, Number 3 (1978)