Bryan Caplan gets abstract:
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.
My view is simple. If you have a job ("economist"), and you live in the safe suburbs, hold gobs of cash, even if you don’t want to use it very often. Economists like Bryan stress that people notice monetary opportunity costs but often ignore time opportunity costs, so the bias is toward too little cash on hand. Paying with cash is sometimes quicker, you make fewer ATM trips, and you pay fewer special fees for using non-home bank ATM machines. The cashless society may someday come, but it’s not here yet. Don’t join it before its time.
Here is an earlier and related post on the tennis ball problem.
Addendum: Greg Mankiw weighs in, hold more cash!