How Much Cash Is In Your Wallet? Why?
By Bryan Caplan
At a recent GMU lunch, two economists sparred over the optimal quantity of cash to keep in one’s wallet. Economist A holds very little cash, on the grounds that you can pay for virtually everything with credit cards. Economist B holds lots of cash, on the grounds that the foregone interest is virtually nothing, and his time is very valuable.
Whose side do you take, and why? Value of time and foregone interest calculations are welcome.
P.S. Please don’t repeat the textbook model of money demand. I’m asking for a concrete solution, not a general framework. 🙂