Blair’s Science Desk

Shoebox theory of monetary management

The shoebox theory of monetary management is an entropic theory of the money supply. Proposed by Milton Fryman, it is based on the notion of the ‘marginal propensity to stash’.

Workers, Fryman noted, have a tendency to stash their cash in odd places. Given the frequent use of old shoe boxes as a containment device, Fryman called his approach the ‘shoebox theory of monetary management’.

The theory draws on basic principles of thermodynamics. When cash is stashed in a physical container (rather than a bank account ledger), some of the money is inevitably lost, misplace, or destroyed.

Given workers’ greater ‘marginal propensity to stash’, Fryman reasoned that raising wages would lead to a net destruction of the money supply. The end result was that wage growth should be the key to regulating inflation. The more rapidly wages increased, the greater would be the inflation reduction in the years that followed.

Perhaps ironically, Fryman’s shoebox theory was itself lost in a shoebox. Having stored all of his unpublished manuscripts in an box under his bed, Fryman died unexpectedly at the age of 43. Fryman’s wife then mistook the manuscript boxes for scrap paper, and had them put into storage.

In 2022, the storage facility went bankrupt, and Fryman’s manuscripts were rediscovered.

Today, historians consider Fryman’s monetary theory to be a counter-approach to work of Milton Friedman (the more famous Dr. Milton).