Capital and the Markets

• 
  
  The stock market is the name given to exchanges where commodities and interest in corporations (stocks) are traded. Value is set using several measures including demand, availability (or supply), anticipated market and stability and value of the currency which is used to trade. Capitalism, the economic theory that forms the basic system of many of the world's nations, relies on markets to trade stocks and other financial instruments. When something goes wrong in the system---say a group of companies fails or investors (who provide the money for companies to operate) slow or stop their rate of "capitalization"---the people who trade stocks or "shares" of companies and speculate on the "futures" of goods look for bargains or sell stocks they think are priced at more than they're worth.
  Today, there are several dozen exchanges around the world, interconnected by companies with international facilities and markets and global commerce.
  
  

Boom and Bust

• 
  
  Before the 20th century, markets were national rather than international and the failure of a crop or industry (for example the death of the gaslight industry after the invention of the electric light bulb and development of an electrical distribution grid) could devastate the stock market in one or two countries. Such "booms" and "busts" were considered a part of capitalism---the price paid for private ownership (and profits) of the industries known as "the means of production." These cycles could occasionally be predicted by stock markets, whose traders followed financial trends and understood the effects of everything from weather to government programs on the market. When enough "indicators" (like employment, new construction, retail and wholesale prices and export-import balance) were negative, traders began selling stocks that they felt were over-valued and took their profits while they could. These "sell-offs" led to the reduction of total value of the market. If enough traders sold enough stocks, the prices on all stocks would fall in a "panic." If no one started buying stock again, "the bottom would fall out of the market" and the market would "crash" until people started buying stocks again, increasing demand and pushing prices up again. There have been dozens of panics and several crashes during the history of American exchanges.
  
  

Keynesians and the Free Market

• 
  
  Today, most people recognize the New York Stock Exchange, but there are several other stock exchanges and commodity markets that make up the American markets. After the Great Depression, several government programs were put in place to attempt to control panics. These programs and others were proposed by "Keynesian" economists who felt that government had a responsibility to protect people from the cycles of unregulated capitalism. The "free market" economists of the late 20th century disagreed with the Keynesians and began disassembling regulatory structures. Reduced regulation, globalization and disreputable debt-management schemes combined to cause yet another crash. Whether crashes can be avoided in the future is unknown but we now know that stock markets affect each other because of globalization, and that governments must create reasonable regulations to put limits on the effects of crashes.