The first time I saw you
Oh, you looked so fine
And I had a feeling
One day you’d be mine
Penny lover, don’t you walk on by
Penny lover, don’t you make me cry
–Lionel Richie, “Penny Lover”
Back in 1976, my five year old self—doubtless dressed in a velour shirt with a big zipper ring and a collar, Toughskin jeans and tennis shoes, all from the Sears catalog—was given a giant cookie tin of pennies by some relative (about $3 worth) and it was love at first sight, just like the song. It seemed like a fortune to me and I concocted grandiose “kid mind” plans for what I planned to do with it, which of course went nowhere. I have no idea what I spent it on, but it was probably Legos (this was pre-Star Wars). In today’s dollars it is about $11. Roughly speaking every fifteen years, inflation makes a dollar worth about half as much in terms of buying power. 1976 was thirty-one years ago so now my cookie tin of pennies would buy about 25% of what it did back then.
Penny and I have long since fallen out of love. It’s really very simple: Due to inflation, pennies really don’t buy anything anymore and are more of a nuisance than anything else. The last thing I recall them buying was Tootsie Rolls and other “penny candy”, an item many small grocery stores used to have on their counters by the register to tempt Junior into whinging until Mom gave in and Junior got a Tootsie Roll. At least the horribly sticky things kept Junior’s mouth shut until the groceries were stowed in the station wagon, though they did make for higher dental bills down the line. Still, the tradeoff was worth it. These seemed to have disappeared sometime in the mid ’80s, but I admit to having ceased looking around then. I’m sure it’s nickel candy now.
Now pennies are almost completely worthless. One of my favorite op-ed writers, Sebastian Mallaby, currently of the Washington Post and formerly of The Economist, in The Penny Stops Here provides a nice analysis of why pennies aren’t worth it and that, in fact, getting rid of nickels makes good economic sense too. Dimes are on the edge. Let me go down the reasons:
- They cost the government more to produce then they are worth. Pennies ceased being made of copper in the early 80s when copper ended up being worth markedly more becoming wire rather than being pocket change. Copper-coated zinc was substituted and all the copper pennies were melted down. While this leads to a cool DIY chemistry experiment, it also lead to much less pennies-on-railroad-tracks copper jewelry. Now the zinc in a penny has become more expensive. This means that pennies cost us more money since we pay for the currency in circulation through taxes. To understand just what this means, here’s a story about the rampant smuggling of rupees from India to Bangladesh to turn them into razor blades, which sell for way more than the rupee coin’s face value. That’s right, you could be shaving with former rupees….
- The main advantage of coins is the fact that they last a long time, something you can see easily by looking at the dates on the coins in your pocket. So even if a coin costs somewhat more than its face value (so long as it’s not too much more), it might be a net gain. Unfortunately pennies are frequently out of circulation sitting in garbage dumps, penny jars, on the floor of the car, in furniture, etc., so there’s little hope to recoup the cost via savings over the lifespan of the coin.
- Transaction costs due to handling pennies are not huge but certainly not chump change. For instance, stores pay about $.60 for a roll of 50 pennies due to rolling costs and just guess who this cost gets passed on to? Due to inane managerial policies, many stores won’t allow the nearly ubiquitous penny jar. This leads to pointless fumbling during transactions, which takes up yet more time.
- In addition to making small change, the big advantage of coins is the fact that they work in vending machines, parking meters, etc. These machines will happily take nickels, dimes and quarters… but no pennies. Why? Because pennies would take up too much room in the coin collection hopper. Vending machine operators would love to see the dollar coin gain acceptance and I bet would be happy with a two dollar coin like they have in Canada, too (which, by the way, are a fantastic idea, but that is for another day), because bill changers are notorious for breaking.
- Removing the penny would also make room for a dollar coin, which would save the Treasury, well, a mint. Dollar bills get the absolute crap kicked out of them in circulation and are replaced constantly.
- Pennies are even more worthless these days because so many transactions are electronic, in which case the rounding necessary in a system without them—which averages out to not cost us anything anyway—doesn’t matter at all. There are some worries, of course: I worry about prices and sales taxes getting futzed with, but honestly, so long as that doesn’t happen much, it should be fine.
There’s predictable opposition from the zinc industry, of course, but screw them deep and hard. They can find corporate welfare elsewhere or, better yet, not at all—the price of their commodity is going up after all. There’s opposition from the State of Illinois because Lincoln is on the penny and as we are constantly reminded, Illinois is… Land of Lincoln. Now I admire Abraham Lincoln probably way more than the next guy ever since I spent a lot of time reading about the Civil War several years back, but he’s safe on the five dollar bill. (Take the time to read American history as an adult. It’s worth it.) It would take some serious inflation indeed to nuke the five spot. I worry more about George Washington—someone I also admire a lot more than the next guy—on the quarter and dollar bill, but at historic rates of inflation which has a halving of current money value for every fifteen years, give or take, quarters won’t be worth essentially nothing for a few decades yet. The Mint has shown that they can strike coins of different types, for instance the “states” quarters and the “dead presidents” dollar coins, which will give luminaries like Franklin Pierce, James Buchanan, Warren G. Harding and Calvin Coolidge their sole opportunity to be on money. So they can make sure to put plenty of dead politicians on our money, or maybe they could go back to the old days before politicians’—no matter how worthy—were on the money entirely. The first presidential head on coins was in 1909… Lincoln, on the penny. It was controversial.
Penny lover, walk on by….
Mildly Piqued Academician
(First in a series about the currency of the USA.)