Here's how it works:
* Inflation erodes the purchasing power of money. This means you need more money to buy the same amount of goods and services.
* To counter this, people may engage in frequent trips to the bank or ATM to withdraw smaller amounts of cash. This is because holding onto cash for too long reduces its value due to inflation.
* These frequent trips, especially if you have to travel a distance, require extra effort, time, and transportation costs.
* The extra wear and tear on your shoes from all this running around is a metaphor for the "shoe-leather cost" of inflation.
In short, the "shoe-leather approach" describes the economic inefficiency and wasted resources that arise as people try to avoid the negative consequences of inflation.
Here are some key points to remember:
* It's a metaphor, not a literal cost.
* It's a cost associated with high inflation, not moderate inflation.
* The concept is related to the idea of menu costs, which are the costs of changing prices on menus or price lists.
Examples of shoe-leather costs include:
* Spending more time and money on withdrawing smaller amounts of cash.
* Having to negotiate prices more frequently.
* Investing in assets that are less affected by inflation.
In summary, the shoe-leather approach is a way to visualize the real-world costs of inflation beyond just the loss of purchasing power.