Spontaneous Economic Order

TL;DR

This paper formalizes Hayek's concept of spontaneous order within the Arrow-Debreu framework, showing that fair and free competitive economies naturally evolve towards optimal income distribution, but may face crises under extreme competition.

Contribution

It introduces a formal model linking Austrian and Neoclassical economics to explain how freedom fosters technological progress and economic stability.

Findings

Spontaneous order emerges in long-run equilibria of fair and free economies.

Extreme competition can lead to economic crises and order degeneration.

The framework bridges Austrian and Neoclassical economic theories.

Abstract

This paper provides an attempt to formalize Hayek's notion of spontaneous order within the framework of the Arrow-Debreu economy. Our study shows that if a competitive economy is enough fair and free, then a spontaneous economic order shall emerge in long-run competitive equilibria so that social members together occupy an optimal distribution of income. Despite this, the spontaneous order might degenerate in the form of economic crises whenever an equilibrium economy approaches the extreme competition. Remarkably, such a theoretical framework of spontaneous order provides a bridge linking Austrian economics and Neoclassical economics, where we shall comprehend a truth: "Freedom promotes technological progress".