I think that was a proposed cure for unemployment. Who said it first?
I’ve always heard it attributed to John Maynard Keynes, the economist.
i sometimes use it at my work to describe how stupid some of the jobs I do are; just busy work sometimes.
In an economists sense, paying people to do that your better off just paying them welfare. Digging holes doesnt produce anything, thus the economy doesnt grow unless you inflate the dollar by paying them extra money, thus ruining an economy.
In other words, I think its a stupid idea.
From what little I know about Keynsian economics, he was talking about using government spending to head off an economic depression. Keynes was the original demand-sider in economics, saying that if people were worried about their job stability, say, it could create a crisis of consumer confidence that would rapidly become a vicious spiral - people would stop spending as much, which would force manufacturers and stores to lay off people, which would create more panic and further depress spending.
One antidote, Keynes said, was for the government to borrow money and distribute it to citizens. This would tend to offset the panic, at least temporarily, and people would go out and spend the windfall, thus stimulating employment. At least, as far as I remember the policy.
The line about “pay people to dig holes and then fill them again”, IIRC, was an alternative solution to forestall the Protestant objections that giving people money without them labor for it violated the work ethic. Keynes didn’t care, he said “well give them busywork to do before they can collect the money then, I don’t care, just so long as they get the cash.”
If I’m wrong please correct me, of course. 
An American is in the USSR and sees two men walking down the middle of a broad boulevard with a dirt median. The first man is digging holes, and the other is walking behind him, filling them in. The American notices a long line of freshly-disturbed mounds of dirt, receding into the distance up the avenue. He asks them, “what are you guys doing?”
The first replies “We’re planting trees.”
And the American says, “But… you don’t have any trees here.”
And the second replies, “No, you don’t understand! Ivan digs the holes, Pavel plants the trees, and I fill the hole back in.”
The American says, “But there are only two of you here.”
And Ivan says, “Yes, Pavel is sick today.”