Metaphorically, shoe leather cost is the cost of time and effort (or

opportunity cost In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity, relative to engaging in an alternative activity. More effective it means if you chose one activity (for example ...

s of time and effort) that people expend by holding less

cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...

in order to reduce the inflation tax that they pay on cash holdings when there is high

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

. These costs include, having to make additional trips to the

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

, not being able to make change, or not being able to make unexpected purchases. The term comes from the fact that more walking is required (historically, although the rise of the

Internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, p ...

has reduced it) to go to the

and get

and spend it, thus wearing out shoes more quickly. A significant cost of reducing money holdings is the additional time and convenience that must be sacrificed to keep less

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money ar ...

on hand than would be required if there were less or no

Theory

Increased shoe-leather cost is one of the impacts of inflation. In a period of high inflation, people are discouraged from holding large amounts of cash because its value deteriorates quickly relative to the rising prices in the economy. People tend to hold most of their money in a non-transactions bank account and keep only very small amounts of cash with them. This causes them to make regular trips to their bank to withdraw cash to pay for goods and services. These regular trips wear out their shoe-leather, thus creating a 'shoe-leather cost'. The term “shoe-leather cost” is now used more generally to describe all the costs associated with having to hold small amounts of cash when there is high inflation.

References

Inflation Monetary economics {{monetary-econ-stub

Theory

See also

References