It started in the 1920s, everyone decided they wanted to buy stuff and invest in the stock market – and banks and companies said “Sure, go for it, credit for everyone, easy terms, enjoy now, pay later, party on!” So everyone did. For an entire decade. Because everyone was buying stuff companies pumped out ever increasing amounts of stuff, because they figured everyone would keep buying forever. The stock market went up because people just bought and bought – which made ever increasing stock prices seem possible. Things went on like that till 1929, when one day a few key people decided “I’m out now – prices are high enough.” At which point everyone else, seeing the prices starting to fall, collectively said “SHIT!” and raced to get their money out before their stocks lost even more value. So the entire investing population went nuts, sold rapidly, and stock prices collapsed.
When ended up with a whole bunch of people still owing the money they’d borrowed but having nothing to sell to pay their debts. So they lost everything they had and went bust. The problem was it wasn’t just people – everyone had jumped into it – including banks. Banks had invested their money on the stock market or in easy loans and now these things didn’t have enough value. So when people went to the banks to get their money out the banks couldn’t pay them and went bust. As well everyone who had lent money went to those who owed them money and said “Bitch where’s my money?” and were told “I don’t have enough money, you can have what I’ve got in cash and stuff, first come, first paid.” So suddenly everyone had a lot less money than they thought they had, more critically, they had a lot less real money to lend or spend – and without lending or spending the economy simply ground down. People bought only what they needed to survive, if they could, and held what money they had because the system had seized up.
Without money flowing, without people buying anything but bare essentials, businesses had left over stuff they couldn’t sell (those lucky enough not to go broke when their creditors demanded their money.) So these businesses stopped producing stuff and instead waited till what they had already made sold. But since they weren’t employing anyone their unsold stuff stayed unsold or undersold. In many cases this went on till the business ran out of money for its bare essentials spending and went broke. If a business could stay afloat it functioned at a fraction of its former activity, people stayed unemployed, and new wealth wasn’t created or existing wealth redistributed. It went on like this through the 1930s until the government, to fight World War II, undertook a massive infusion of new wealth into the system and a massive wealth redistribution – war buying. At which point the Great Depression ended and the economy geared back up.