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Adam Smith pointed out many important features of pure market economies. One of the more interesting is the problem of economic crisis.

Smith observed that the crises tend to come fairly regularly. After periods of growth and great demand (where the stock market buy stock), the manufacturers make too much/too many of a product. The supply suddenly exceeds the demand, and the growth comes to an end. This happens when the economy is at the top.

After a while, the companies do not generate enough profit. The stock market grows weary. Shares of stock are sold. When more people want to sell stock than there are people who want to buy, the stock price plummets. After a while, businesses go bankrupt.

When enough businesses are bankrupt, two things happen:

  1. Unemployment makes workers work for less money
  2. The lack of manufacturers creates skyrocketing demands

Both these things increase profitability. And then the growth starts again...

Smith describes this as a law of nature. A pure market economy will vary between deep crisis and great growth. Because of this, only the most profitable companies survive.

The implications this has for the workers are just as harsh.

Every kind of mixed economy try to soften the effects of this law of nature. After all, human beings have always tried to avoid weather, volcanoes and death (also laws of nature), so why should we accept this one?

What occurs when influential economists and government officials lack a basic understanding of economics. (See also gold standard, capital flight, banking, dollarization, and prison-industrial complex.)

One of the problems with an economy that loses self-reliance is that it becomes vulnerable to fluctuations in market forces in other parts of the world. These fluctuations are often beyond the control of the local economy because of its limited influence in global matters. One alternative is to ensure that the economic situation of each area is as independent as possible from other areas - freely standing in case other houses of cards start collapsing around it.

In this way, a change in demand in other parts of the world has little effect on the consumption of local supply if the supply is primarily targeted at the local population.

One of the problems with a non-anarcho-syndicalist structuring of companies is that survival of the company becomes dependent on an additional factor - the price of the stock. In employee owned companies, only the sale of goods and services affect the survival of the company. In addition, such companies tend to be less harsh on workers because they are the ones ultimately in control.

Survival of companies in a cooperative system depends not so much on competition for market share but demands for the given product. If demand falls naturally, former employees (or the companies themselves) become absorbed into other sectors of the economy providing the goods and services that people still need.

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