The Warrington head coach fears clubs will put themselves in danger of bankruptcy in attempts to avoid relegation under proposals for a two-tier Super League of 12 clubs from 2015.
The plan, in which the leagues would split into three divisions of eight before reverting to two leagues the following year, is one of three ideas currently being discussed by clubs as part of a consultation process being carried out by Rugby Football League chief executive Nigel Wood.
Clubs appear ready to ditch the current licensing system in favour of a return of automatic promotion and relegation from the end of next season which Smith, who performed the role of technical director for the RFL during his time as national coach from 2006-09, believes will result in more short-term decision-making and less emphasis on youth development.
Smith pointed out that Salford's new millionaire owner Marwan Koukash has gone on record to say that he intends to deliberately flout the salary cap in 2014 in order to provide the funds for Brian Noble to make the City Reds competitive.
"How good a decision is going to be made when you are desperate to stay in the division that you are in?" Smith asked at the end of Sunday's post-match press conference following his side's 52-6 Tetley's Challenge Cup fifth-round win over Salford.
"We have already got people saying that they are prepared to break the rules to win, what about breaking the rules to survive and stay in the competition? It is going to be mayhem. Do you know how much money is going to be spent on development?"
Smith also criticised Super League clubs for their decision to scrap the reserve-grade competition this season, and added: "I am over the innovative tag for rugby league. What about being stable, strong, consistent? We are in the midst of the worst economic crisis since the great depression and yet now is the time we are choosing to judge our current systems!
"We have been producing some really good young players, so much so that the Australians are coming here to take them. We are starting to produce some half-backs, outside backs, types of players that we have not produced for years and yet we change the system again.
"We take away that production system, take away the responsibility for clubs to produce those players and we go to a system that is 'popular' by all accounts. To just throw the whole system out the window is a knee-jerk reaction."