This article was written by guest contributor, Alexander Lawless
The American system of currency is certainly one of world prominence. In fact, it would not be unfair to state that no other nation in the world can boast the popularity and instant recognizably as the legal tender produced by the Mint of the United States. From the wise gaze of Benjamin Franklin on the one hundred dollar bill to the sober face of Thomas Jefferson on the rare two dollar bill, it is no question that many Americans have a sense of nationalism and defensiveness when it comes to the currency that they know and love. This love, however, can be dangerous.
The sentimentality of our citizens when it comes to many of our traditional practices is generally harmless, but the threat that such blind attachment and stubbornness does, in fact, prove to be a significant issue when it threatens the stability and efficiency of one of the largest economies in the world. This is why, in our modern world of constant optimization and innovation, it becomes increasingly necessary for our currency to adapt. This means that in order to keep up with the ever-changing and advancing world, the United States of America must, barring significant consequences, abolish the penny.
In order to understand the reasoning behind the hopeful removal of the one cent coin from production, it is necessary to first learn the background of the penny, and more generally, the inner machinations of the complex currency system that thrives within the United States. The United States Mint was established under the Coinage Act of 1792. This law, enacted April 2nd 1792, put in place the underlying schematics for the currency of the young nation, including directions to establish a system of dollars and fractions of those dollars, in terms of decimals, or cents. The Coinage Act of 1792 approved the minting of ten standard coins. The main coins were The Eagle ($10.00), The Dollar ($1.00), The Dime ($.10), The Cent ($.01), as well as the Half-Eagle, Half-Dollar, Half-Dime, and Half-Cent, each valued at half of its namesake, in addition to the Quarter-Eagle and Quarter-Dollar, each valued at one fourth.2
Many of these coins seem foreign to a modern American, for example, neither the Eagle nor any of its denominations of lower value are in circulation today. The circulation of the half-penny met the same fate. For simplicity’s sake, this will be the fate that will be elaborated upon. The half-penny was a commonly used currency in in its heyday, back when the US dollar had so much value that it was not a rarity to deal in fractions of cents in everyday life, but over time, inflation kicked in and eventually sealed the fate of the coin. As time went on, the economy of the United States changed constantly, leaving the coins that were suitable for an eighteenth-century America rendered obsolete. As time went on, it became clear that the half-penny was not necessary to continue minting for a plethora of reasons.
Firstly, it had lost its relevancy as prices began to rise and less and less everyday products were still priced in half pennies. They were really just nuisances to the people and a strain on the government’s precious resources. Perhaps the most prominent setback of the half-penny was its nonsensical production cost. Each half-penny, worth only $0.005 in the marketplace, was stricken out of copper that, when melted down, was worth six times this amount. Each copper half-penny cost the U.S. mint around 3 cents to produce, an obvious waste of money.
The Mint was at a crossroads at this point. It could either continue producing a piece of currency that was losing its value and usefulness in society at an alarming rate; wasting an absurd amount of money while doing so, or it could take the sensible path and abolish the half-penny altogether. The U.S. Mint, being relatively clear-headed and corruption free at this point in history, took the sensible path and ceased production of the half-penny once and for all in 1857, an action that had no real downside. The government was saving precious taxpayer money, and the people began to slowly stop usage of the nearly-valueless coins that weighed down their pockets.
The story of the half-penny (thankfully) pretty much ends here, as the citizens of the United States basically stopped circulating the coin by the end of the Civil War. A weight of inefficiency had been lifted off of the shoulders of the citizens of the United States, and they did just fine by rounding their prices up to the nearest cent. No disaster occurred, the people did not riot in the streets, the sky did not fall, it was business as usual in America once more.
The most surprising fact of this all, in fact, was that the half-penny then was (conservatively) valued as much as a dime is today. Could this be true? Could the United States have possibly functioned without a unit of currency worth less than an eraser? Yes. Today, our dime, nickel, and penny coins all represent values that the U.S. was completely fine without having currency for.
Flash forward to modern times, when the world is dominated by technology, millions of transactions are occurring every second across the planet to accommodate Earth’s constantly growing population of billions. The market is now globally competitive between nations and corporations, and no inefficiency can be spared from audit. Competition exists in nearly every market, and works to ensure that the best, cheapest, most efficiently produced product wins out and prevails. One institution that is conveniently exempt from such competition is government. Government, free from competition, rarely has any incentive to save money or to think critically on their own practices. Working on the taxpayer’s money, politicians have no direct consequence for overlooking even the largest inefficiencies. The penny’s fate is, unfortunately, no exception to this process.
Back to the issue at hand, the country seems to be having the same problem as it faced in 1857. However, it’s actually much worse. Firstly, the penny today is, in fact, less useful than the half-penny was at and around the time of its abolition. As mentioned earlier, the half-penny was worth what fourteen cents could buy today. It is nearly impossible to think of anything in modern America that can be bought with a penny.
The only real use of the one cent coin in today’s world is when a cashier returns change to a customer after a transaction occurs. The natural life of a penny often ends here, with the inevitable act of the recipient losing the penny between couch cushions or in a jar or tray somewhere, never to be used again. In fact, the penny is such a useless obstacle for consumers that the few seconds spent everyday by customers in line at the supermarket is estimated to waste a total of $300 million worth of time (at the average wage) annually.6 Is perpetuating this inevitable cycle really an efficient use of taxpayer money?
On the issue of taxpayer money, there are more technical reasons to discontinue the production of the penny, and that is the tremendous amount of taxpayer money U.S. Mint is losing by continuing to produce them. The production cost of one of these coins is around 1.5-1.7 cents, almost double what they are supposed to be valued. The United States Mint, is quite literally, throwing nearly two cents in production costs out of the window, and only getting one in return. This is a highly unsustainable and irresponsible practice that, when committed on a large scale, can have obvious and expensive consequences. One estimate from an economics professor named Robert Whaples shows that the government loses nearly $900 million in taxpayer money annually by continuing to produce the penny. This is clearly a tremendous waste of the government’s resources, for no plausible reason.
This is not the first instance of this occurrence, however. The high production costs of the penny hearken back to the high production costs of the half-penny. Should the issue not be solved in the same manner? The solution that worked flawlessly for the half-penny is likely exactly what is needed this time. All the evidence points in the same direction. History is repeating itself. It is time to abolish the penny.
Amidst the many arguments for abolition of the penny, some misconceptions have sprung up to act as a last stand for the copper coin, but most of these can easily be disproven with proper research. One of the most common arguments against abolition of the penny is the fallacy that rounding prices to the nearest nickel will end up costing consumers more. However, this is actually not true. It is true that once the penny is eliminated, prices like $2.99 or $10.76 will eventually have to be rounded so that they can be paid with nickels, but this won’t necessarily end up costing the consumer like argued. Professor Robert Whaples conducted an experiment where he studied around 200,000 transactions from 20 different gas stations and convenience stores that rounded prices up to the nearest 5 cents. He found that this change only had a magnitude of about 1 cent per 40 transactions, an amount so small that the consumer and store “basically broke even”.
Another common misconception is that rather than abolish the penny, the U.S. could save enough money just by changing the materials the penny is made of. Well, this has already been attempted many times by the U.S. Mint, to no avail. The penny that we have come to know and love today is actually not made entirely of copper like it is typically thought to be. The modern penny is actually only 2.5% copper and is actually 97.5% zinc8. This is the result of many years of decreasing the copper content of the penny in efforts to slow the runaway train that is the true cost of the one cent coin. Despite the watering-down of the expensive metals within the penny, the U.S. government is not willing to identify any metal that is cheaper than zinc for possible use in the production of the penny. So unfortunately, the penny is already just about as cheap as it can be to produce, and no amount of metal-switching will likely change that.
There are still a few other worries that Americans have against getting rid of the penny, but most of the rest don’t have proper evidence to justify them. One worry is that ridding America of Abraham Lincoln’s face is disgraceful and does not leave him with the recognition he deserves. However, Abraham Lincoln is also memorialized on the five dollar bill, which is certainly more of a testament to his legacy, being 500 times as valuable.
People are still hesitant that this change may somehow bring chaos to our economy, but this has been proven time and time and again to be false. Plenty of other advanced countries have eliminated their lowest denomination of currency, and went on to be perfectly fine. Such countries include: Canada, Australia, Brazil, Britain, Denmark, Finland, Hong Kong, Hungary, Israel, Malaysia, Mexico, the Netherlands, New Guinea, New Zealand, Norway, and Sweden. The rest of the world smartly removed their least valuable piece of currency and are currently reaping the rewards of less waste. If the United States joins this list, it too can put aside this grossly inefficient practice and start allocating money to more useful causes.
So why has the U.S. government seemingly ignored this issue when so many other developed countries have solved it? One reason may be that such a bipartisan, and not too popular issue may not be as glamorous as other seemingly more controversial issues, but this may not be the whole truth. This may be an issue of slight corruption, as some suspect. The U.S. Mint gets its zinc from one source, Jarden Zinc, a zinc manufacturing company based in Greeneville, Tennessee. In 2011, Jarden Zinc received $48 million in federal contracts in exchange for their supply of zinc for use in penny production. If the penny is abolished, this large source of revenue for the Greeneville-based company will vanish. In order to protect their assets, the Jarden Zinc company reportedly paid lobbyist Mark Weller $140,000 to stall the congressional discussion about the future of pennies. It is likely that the Jarden Zinc company, among others, have paid to delay proposals into congress with the intention of delaying progress that will save the government millions. This is textbook corruption, and nothing is being done about it.
Clearly, the penny has outlived the miniscule usefulness that it once had, and is now a sad reminder of the constant threat of corruption and hinderance of progress that still has a visible presence in the United States government. In the past, America was able to overcome this obstacle, and did so without an issue. In modern days, however, this unfortunately proves to be a more difficult feat. With the clouded judgement of today’s politicians, the only hope for a sensible future is a well educated, powerful population. What better way is there to show the true power of the people for positive change in our world than stand up to corruption and join the cause to abolish the penny? Small feats like this often have larger impact on the course of history than originally measured. Maybe doing something sensible with our pocket change now can, in the future, cause a colossal change.