The Economics of Digging a Hole


‘If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.’

– Keynes. J.M. (1936) The General Theory of Employment, Interest and Money, Book III: The Propensity to Consume London, United Kingdom: Palgrave Macmillan p. 129

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One thought on “The Economics of Digging a Hole

  1. ‘Keynes believed that free market capitalism was inherently unstable and that it needed to be reformulated both to fight off Marxism and the Great Depression. His ideas were summed up in his 1936 book, “The General Theory of Employment, Interest and Money”. Among other things, Keynes claimed that classical economics – the invisible hand of Adam Smith – only applied in cases of full employment. In all other cases, his “General Theory” held sway. […]

    Keynes’ “General Theory” will forever be remembered for giving governments a central role in economics. Although ostensibly written to save capitalism from sliding into the central planning of Marxism, Keynes opened the door for government to become the principal agent in the economy. Simply put, Keynes saw deficit financing, public expenditures, taxation and consumption as more important than saving, private investment, balanced government budgets and low taxes (classical economic virtues). Keynes believed that an interventionist government could fix a depression by spending its way out and forcing its citizens to do the same, while smoothing futures cycles with various macroeconomic techniques.

    Keynes backed up his theory by adding government expenditures to the overall national output. This was controversial from the start because the government doesn’t actually save or invest as business and private business do, but raises money through mandatory taxes or debt issues (that are paid back by tax revenues). Still, by adding government to the equation, Keynes showed that government spending – even digging holes and filling them in – would stimulate the economy when businesses and individual were tightening budgets.’

    Courtesy of http://www.investopedia.com.

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