What is money? Keynes on Hole-Digging

I’m reading Keynes’ General Theory of Employment, Interest and Money (1936) for the first time in my short life so far. My reading notes will follow. Keynes is famously portrayed as someone who advocated that the government ought to employ people to dig holes and then fill them up – an example of a government employment scheme that achieves absolutely nothing as its primary effect, but has a secondary effect of stimulating the economy and lifting us out of recession.

What does Keynes actually advocate? A quick Google of “Keynes digging holes” gets you lots of blog posts quoting this paragraph, from Chapter 10 (The Marginal Propensity to Consume and the Multiplier):

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.

Nobody is being employed by the government in this scenario, apart from the Treasury civil servants who presumably were employed anyway (the scenario does not emphasise the employment of more civil servants). In fact, what this scenario describes is a form of quantitative easing (creating more money in order to increase the amount of money in circulation) that nowadays is called “helicopter money”. The common image is of a helicopter dropping stacks of banknotes into crowds of people who are jumping and grabbing the raining notes. Keynes instead envisages it as people digging for banknotes.

I wonder why Keynes did not advocate simply leaving the notes on the ground, rather than deploying them from above or below? I think the “digging” scenario is meant to contrast a fiat system of money with the gold standard.

What makes something count as money? A thing is money if there exists an orderly network of social relationships in which other people treat the thing as money. In a fiat system of money, a banknote has value because the monarch/government/central bank says, by fiat (by order), that it should be recognised as having value throughout the kingdom. Furthermore, the government creates situations in which people has to use that particular form of money – by demanding that taxes or tributes be paid in the money-form of the government’s choosing, for example.

When enough people, or people with enough power, call something money, then they make it so. Similarly, when a vicar marries two people to each other, the vicar’s statement “I hereby marry Angela and Amy” is a performative speech-act – by stating it, the vicar makes it true. People start relating to Angela and Amy as a married couple. They get a certificate with legal recognition, which means that people in suits in courtrooms recognize them as married.

When governments abided by the gold standard, many economists stated that gold was the real store of value, and banknotes were valuable so long as they could be exchanged for gold – which the central bank promised to do. And in such a world, people actually dug money out of the ground, just as in Keynes’ example.


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