Shoe leather cost

Shoe leather cost refers to the cost of time and effort (more specifically the opportunity cost of time and energy) that people spend trying to counter-act the effects of inflation, such as holding less cash and having to make additional trips to the bank. The term comes from the fact that more walking is required (historically, although the rise of the Internet has reduced it) to go to the bank and get cash 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 on hand than would be required if there were less or no inflation.

Explanation

A shoe-leather cost is one of the impacts of inflation.

In a period of high inflation people are discouraged to hold large amounts of cash because its value deteriorates quickly relative to the rising prices in the economy.

As a result, people tend to hold most of their money in a 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 shoe-leather cost is now used more generally to describe all the costs associated with having to hold small amounts of cash.

See also

• Menu cost