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This website indicates a study was done by the US army but it offers no citation or identifying information. I've scoured to try to find the answer myself but am running short on time. Is it true?

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    Sounds more like a question for Skeptics, though not off-topic here. – David Richerby Aug 27 '18 at 18:39
  • Can you explain why you need the answer? I'm wondering if this could be an instance of the X-Y problem; it's already attracted one answer that assumes that you're looking for studies into make-work projects versus charity during periods of economic hardship. Would other examples like this be useful even if they have nothing to do with the US Army and/or the Great Depression? – tardigrade Aug 28 '18 at 12:53
  • Did you found something which can be marginally relevant to the question in your previous search? Any info can help us to answer your question. – Brian Hellekin Aug 28 '18 at 14:47
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Keynes suggested it during the Great Depression. It's not exactly the same, but I think what you've heard was a mutation after so many years.

In the depths of the great depression, Keynes suggested that "the Government should have people dig up holes and then fill them up". What at first seems like a wild idea, may have had some logic behind it. Keynes believed that an initial injection into the economy could stimulate economic growth. Digging up holes and filling them up again seems pointless, and is, except that it gives money to people, which they then go and spend, increasing aggregate demand - leading to economic growth. This effect is known as a "multiplier" effect - an initial investment leads to a greater than proportional increase in national income/product/output.

The actual quote from his book was:

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.

And the second mention of "dig:"

'To dig holes in the ground', paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.

The General Theory of Employment, Interest and Money (London: Macmillan, 1936), p. 129.

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    How does such a project contend with the broken window fallacy? – corsiKa Aug 27 '18 at 19:24
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    @corsiKa, they Keynesian account (which I think is incorrect) is that the broken window fallacy does not apply when an economy is "sick" since there are unused resources which can be utilized. – Winston Ewert Aug 27 '18 at 21:05
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    Keynes seems to have neglected to consider that the initial investment (the notes and the cost of burying them) must be taken from some existing resource. =) This can be done via taxation, inflation, or loans. All of them take away resources from other producers or savers. In other words, all it does is shuffle money into a useless activity when it could have gone elsewhere. WW2 is an example of the idea in action, but it came with enormous debt. One might argue that it was the death of many of FDR's policies during WW2 and the fact they were not revived that ended the Depression. – jpmc26 Aug 27 '18 at 22:39
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    Regardless of what you feel "anyone can see", an approach without rigor is basically just wishful thinking. In the historical context, Keynes was arguing against your exact point, there is no magical "market" that can jump on opportunities when the system is in a stable depressed state. I am not here to defend Keynes as a modern theory, but the historical interpretation of his work. If you would like to understand his reasoning I suggest reading the cited work in this post, or you can continue to wave your hands. The issues at hand go well beyond single industries and products =) – crasic Aug 28 '18 at 0:34
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    @jpmc26 - actually what anyone can see is that a product that vastly benefits a customer is not enough to create a market... history is rife with such examples where a discovery or invention was made then languished, and also was picked up later to popular and/or world changing effect - the product alone was not enough. And the "figuring out how to sell it" bit was also, seriously nontrivial, which again emphasizes that the product itself was not enough, and there is (as Crasic said) no magical "market" that will work just because it would make sense if it did. – Megha Aug 28 '18 at 5:08
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The practice of 'make work' was quite common long before the great depression. If the US army did study it (and I have no information if they did or not) then it would not have been for soldiers to dig the holes, but for the desperate to be given a means of earning some income - the theory being that work was better then charity and any work was better then no work. In parts of Ireland, you can see beautiful dry stone walls that were built up and over mountains by wealthy land owners during the famine (1845-1852) to give their starving tenants the income to pay their rent (and feed their families).

Background reading and references: The use of work vs charity to deal with poverty: Irish Poor Law - 1838

Interesting essay on what lead to the Irish famine being so severe: http://www.clarelibrary.ie/eolas/coclare/history/prefamine_clare.htm

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