Today, I stand in defense of the penny, for several years I have been reading articles like this one that state the penny is a dead-weight loss on the economy. Penny production and now even nickel production cost more that the face value of these respective coins. Most of these articles advocate dropping the penny (and some even the nickel) and rounding all of our transactions. I think this is a terrible idea, and the authors of these articles are missing the point; the problem isn’t the coin itself, the problem is our money as a whole.
In 1971 President Richard Nixon signed an executive order and closed the gold window. At the time the two main reasons for this were to provide funding for the Vietnam War (by allowing us to print more money) and to stop other countries and speculators from manipulating the US currency through the gold window. The problem with going off the gold standard was that now the US dollar is not restricted. The government can print an endless supply of them. Have you ever listened to the older guys telling stories about buying candy bars for a nickel and going to the moves with a dollar? They are referring to a time before the US went off the gold standard, and all prices were lower. Yes the candy bar cost a nickel, but in 1971 minimum wage was only $1.45.
The problem isn’t the penny, it’s our currency. Sustained increases in the money supply have caused the value of our dollar to erode, while the true cost of durable goods stayed relatively constant. Other countries have switched to plastic coinage in order to stop loosing money on minting coins. I would personally prefer a stronger dollar where our penny would actually be worth something. To me this seems like releasing snakes in the building to solve the rodent problem. You are creating a problem by using the wrong solution to fix the first problem. Look at the 50 Trillion Dollar Bill from Zimbabwe that you can buy for around $7. With a prolonged effort to strengthen the dollar it is entirely feasible that the cost of minting low value coins would once again drop below their face value…
But wait! If they are “losing” money on pennies and dimes, they are making a killing on $100 bills! (They don’t seem to mention this very often). It costs about 5.7 cents to print a $1 bill and 12.5 cents to print a $100 note. That’s a hefty margin even on the $1 bill, let alone the $20, $50, and $100. The treasury already “saves” billions a year by printing notes and not having to actually mint gold or silver coinage.
Advocates say that axing the penny and the dime could save the treasury $100 million a year. While this is certainly a large chunk of money it is about 0.003% of the federal budget. The penny is the last vestige of money backed by the value of something tangible in our system that is left. I think that is something worth holding onto in our 99.9999% fiat world. If you don’t think pennies are worth having around, kindly send me your boxes full of pennies and I will be happy to deposit them in my bank account. This has worked great for Coinstar, which for years has been charging 10.9% to turn coins into cash. What a racket! My credit union branch has an excellent coin machine that prints out a receipt we can then deposit with no charge.
What are your thoughts on the penny? Do you think we should get rid of it? The devaluation of our currency is one of the main reasons people invest in gold and silver.
Not trying to get political, but this 1983 speech by Dr. Ron Paul on the Federal Reserve is one of the most passionate speeches I have seen and articulates the problems with fiat currency, both economically and ethically extremely well.