Shoe Leather Economic Costs

Shoe Leather economic costs are a very specific externality of hyper inflationary monetary policy. Basically, during hyper inflation, people would much rather only hold enough cash to make a purchase that same day. If they were to hold cash for say, a week, they would have considerably less purchasing power due to inflation. Shoe leather costs are the extra effort and the opportunity cost of having to travel to the bank frequently to make withdrawals. This results in a less productive economy because many members of the labor force are forced to spend time retrieving money instead of producing goods.

One of the best examples of this currently is in Venezuela. In Venezuela, many people are forced to remove cash one or even twice a day because the 13000% inflation rate significantly devalues their money if they keep it on themselves during the day. Along with this many people have switched to a new currency of trade, the egg, in order to make transactions.

While shoe leather costs almost always indicate a poor economy, their extent in Venezuela is only one part of the massive hyper inflation the country is experiencing.