A periodic phenomenon of the capitalist market economy
In an economy of open competition all producers try to maximize their profit at the expense of other producers. There then comes a situation where the combined output of all factories is more than the market can absorb. To continue to sell their products, the producers have to lower their prices until production is no longer profitable. Production shut-downs then lead to mass unemployment.
To get out of the crisis and restart the economy existing productive wealth has to be destroyed, usually through bankruptcies and the scrapping of machinery but in the modern economy also through the devaluation of stocks, real estate and other fixed assets. Those companies that survive emerge from the crisis with control over a larger share of the market.
Economic crisis are accompanied by an increase of poverty. Before capitalism poverty was a natural occurrence because the total productive output of the society was often insufficient to guarantee acceptable living standards for all its members. Feudal societies often used a large percentage of the total production to support the lavish lifestyle of the ruling class. But much of that went into the living support of servants, artisans, artists, musicians and other services to the courts; it was thus still a part of the totality of subsistence support for the members of the society, and the elimination of feudal excesses and luxury would not have had a very big impact on the average living conditions. Poor living conditions were an accepted state of society for millennia.
The situation changed with the beginning of capitalism. Science and technology have made the elimination of poverty a real possibility; yet the contrast between rich and poor nations has grown. Poverty is no longer a natural condition but a condition of the specific laws that govern society.
Economic crisis are often described as a mismatch between supply and demand. This is misleading, because it is not insufficient demand that prevents the realization of profit from sales during a crisis but insufficient buying power. The objective demand for the produced goods grows at the same rate as world poverty increases. The crisis only exists because the poor cannot pay.