The German American amateur economist Nicholas Johannsen (1844-1928) published a work in 1908 entitled A Neglected Point in Connection with Crises in which he developed the notion of ”impair savings” He used this notion to point out that crises originated with a slump in investment. The peak of a cycle and prosperity was associated with a high rate of capital investment and the smooth transfer of savings into capital investment and these new investments in construction and enterprise created employment. (See the discussion of Johannsen and his work in Robert Dimand , The Origins of the Keynesian Revolution and in Lawrence Klein, The Keynesian Revolution,London: Macmillan, 1965. pp.143-145)  Keynes also devotes a brief footnote in TheTreatise of Money to Johannsen and his argument (See  The Treatise on Money bk.vol.2 bk. 6 p.100 note 4. See also Phillip Arestis and Malcolm Sawyer, A Biographical Dictionary of Dissenting Economists published by Edward Elgar, 2000.) Keynes calls them ”savings withheld from consumption expenditure but not embodied in capital expenditure and so causing entrepreneurs who have produced goods for consumption to sell them at a loss” (or not sell them at all my addition) Keynes suggests that Johannsen regarded this situation as a permanent condition of modern capitalism circa 1908 but the remedy according to the Keynes of The Treatise era lay in a fall in the rate of interest to ensure that the banking system passed on the full amount of savings to investors.

Klein explains that once one clears up some of the ambiguities in Johannsen’s definitions his notion of impair savings is an important break through in thinking against the over-investment theories of economists like Hayek who argued that crises occurred because of excessive over investment which in effect blamed the crisis on a shortage of savings rather than the opposite.  Klein puts Johannsen’s argument rather well. Impair savings result when profitable investment opportunities fall after a period of intense capital accumulation. Investment outlets decline faster than continued savings until this imbalance results in a sharp decline in growth. (Klein,p.145) In the current climate of depressed entrepreneurial expectations the money hoards of the corporations, the wealthy and the banking system still being uninvested represent impair savings of the kind that Johannsen described. Johannsen also had some interesting notions about the employment multiplier as well . He appears to be the first to use the term, multiplier, although his calculation was somewhat crude.