Cash In Circulation: A Topic Economists Hate $1.34 Trillion U.S. Cash in Circulation—Most of It In The USA? Up $500 billion since 2008; Doubled In 10 Years

A Benjamin Cole post

Back in the 1970s, when I took introductory macro at Berkeley (and fell in love with economics), I asked the professor about food stamps.

Back then, food stamps were literally booklets of stamps, intended solely for use in grocery stores. But people traded the stamps about as cash.

So I asked the prof, “Well, do food stamps add to the money supply?”

He glared at me. Hadn’t I been listening? He huffily went back to the chalkboard and pointed at M1, M2 and M3, and contemptuously dismissed my question—“Food stamps are not part of the money supply,” the words ring yet. To rub it in, he briefly essayed the declining role of paper cash.

I didn’t dare ask about casino chips, let alone subway tokens.

Forty years later, economists still hate to talk about paper cash.

$1.34 Trillion In Circulation

The numbers get crazier every year. You read about the cashless economy, but the greenbacks tell us something else, as in $4,213 in paper money in circulation for every resident of the U.S., whether in old age homes, toddlers, or the incarcerated. Cash in circulation has doubled in the last 10 years.

Some try to dismiss the paper cash-topic by asserting the Benjamin Franklins are in suitcases, doing drug deals overseas.

But Edgar L. Feige, University of Wisconsin-Madison prof, has studied the U.S. cash situation for decades, and concluded just one-quarter is offshore, possibly less. In 2012 he published a persuasive paper entitled, The myth of the “cashless society”: How much of America’s currency is overseas?

Feige also came across the surprising fact that more U.S cash enters the stateside than leaves it in some years, by official count of the Fed.

If Feige is right, of the $500 billion in new cash printed up since 2008, perhaps $330 billion to $370 billion is circulating in the United States.

Feige is probably onto something: The amount of Canadian $100 bills in circulation has also soared in recent decades. And the Japanese keep the yen equivalent of more than $7500 cash per capita in circulation (in 2010). But no one ever knowingly says, “The paper yen is used in drug deals.”

One paper cash commonality across the broad: Nations with a large amount of paper lucre in circulation per capita are advanced, rich—and high-tax.

Gee, what does that tell you?


So the natural question is, “Well, how many times a year does paper money circulate?”

If the U.S. has another $350 billion in circulation since 2008, and $1 trillion total in the U.S now—what does it mean?

No one knows, as there seems to be no way to count paper money “velocity.”

That may be one reason economists detest the big paper cash story so much.

Also, perhaps for liberal economists the big cash story suggests people in the U.S. are better off than the official stats say, diminishing the need for state services. For conservatives, the cash story heretically suggests putting several hundred billion of paper money into circulation since 2008 has been stimulative, but not inflationary.

And for all economists, a large cash, off-the-books economy tends to undercut the elaborate yet fragile econometric models so deftly constructed to give precisely the results desired—but which rely on reported data. As Feige puts it, “the growth of unreported income has the insidious effect of corrupting the reliability of primary data used for most macroeconomic analysis.”

Oh, that.

BTW, Feige in his 1989 paper Currency Velocity and cash payments in the U.S. Economy: The Currency Enigma, cited earlier Fed studies to the effect paper money turns over 20 times a year. Obviously, that figure appears far too high today—the cash economy would be larger than the reported economy.


Certainly, the public owning large reservoirs of cash has not been inflationary, and probably provides  stimulus in times of recession—people, with business slow, open up their safes and deposit boxes and start spending, for example.

Well, I always say the Fed needs to print more money. Literally, too.

5 thoughts on “Cash In Circulation: A Topic Economists Hate $1.34 Trillion U.S. Cash in Circulation—Most of It In The USA? Up $500 billion since 2008; Doubled In 10 Years

  1. You mean food stamps aren’t stamps any more? Last (and first) time I saw them was also in Berkeley, as an exchange student 75/76. I took 3 economics classes: macro; labor; and macro seminar. Did our paths cross?

    • Well halloooo Nick Rowe, and flattered I am that you read my humble post! I can remember a prof by the name of Letiche (Econ 1 or 2?), and then a summertime prof from Swarthmore. I took a lot of classes from the then-new School of Public Policy where Aaron Wildavsky (sp?) was in charge. If you saw a troubled-looking guy in your classes, that might have been me!

      After that I went to the LBJ School Of Public Affairs, got an MA…and eventually became a financial news reporter. But I always loved macroeconomics…

      back at Berkeley, monetary policy was hardly taught…strange to think that I have gravitated entirely into the Market Monetarism camp…I like to think even old dogs can learn new tricks…if they stay open-minded…

      I will read your posts with fresh interest from now on…

    • Oh, to answer your question on food stamps: My understanding is that today recipients get a debit card.

      Interestingly, when in 2011 I took unemployment insurance, that’s how I collected—through a Bank of America debt card, provided by the State of California.

  2. Suitcases of cash? Gotta get me some of that. 🙂

    Seriously, just so happens when suddenly-tight money starts destroying average people, the credit channel gets trashed. And so it’s not surprising that the amount of cash in circulation has doubled. One news story that has stuck in my mind since late 2008 was about one lady who cashed out a $20k credit line (I wish I had know I’d become a blogger later. I would have saved the link for future reference).

    • Dajeeps…thanks for reading. When you read about cash in circulation, it makes the whole world of macroeconomics look a bit squishy. And as for elaborate, delicate, finely-tuned econometric models—-well, give me Marcus Nunes’ graphs. We are painting with very broad brushes, and those who profess to do detail work are suspect.

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