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from NewsLink, Vol. 4, No. 1, Fall 1999
The last time you saw a penny on the sidewalk, did you pick it up? Would you admit it?
Let's face it, the penny doesn't buy much. Penny candy costs a nickel. Checkout counters have “penny dishes,” not “nickel dishes.” You can't melt down your pennies for their copper value. Since 1982, pennies have been made with 97% zinc.
According to government figures, pennies account for 71% of the U.S. Mint's circulating coin production. But even the government doesn't like the penny for its own transactions. U.S. military installations abroad have long since eliminated the use of the penny because it costs too much to transport. And, in another display of disrespect for the penny, drivers on the Massachusetts Turnpike aren't allowed to throw pennies into toll baskets.
Yes, millions of people hoard millions of pennies (198 million of them by one count.) According to the Wall Street Journal, “A penny saved is a penny earned but too many pennies saved is a big problem for the Federal Reserve Bank in Philadelphia.” Nationally the Federal Reserve says there isn't a problem. But according to The Boston Globe, earlier this year, the Federal Reserve Bank of Boston asked local banks to drop surcharges for people who want to redeem their pennies. It also rationed the coins it sent to local banks.
The problem may be the public's lack of incentive for converting those pennies into dollars. Wrapping the darn things takes time.
So if the penny is a victim of obsolescence, why hasn't Uncle Sam phased it out? The General Accounting Office explored the issue twice, in 1990 and 1996. Since then, it has made three suggestions: continue with the penny, eliminate the penny, and round up or down all cash transactions.
When Congress first studied the idea, a new organization, Americans for Common Cents, arose to defend the penny. (See www.pennies.org). The group contends that eliminating the penny will increase prices and create a “rounding tax” that will hurt consumers. Raymond E. Lombra, Professor of Economics at Pennsylvania State University, says a “conservative estimate places the tax in the $600 million per year range.”
The pro-penny faction offers the further argument that the U.S. government makes a profit of .3¢ (“seigniorage” it's called) on each penny minted, equal to the difference between its face value and production cost.
Neither argument is worth a nickel. The alleged inflation bias stems from the worry that merchants will round the price of a cup of coffee from, say, 99¢ to a dollar. But merchants attach odd prices to products in order to make them look cheaper than they really are. The same merchant might well lower the price to 95¢ in order to remain competitive.
The “pennies-for-profits” argument doesn'ts roll very far either. A few hundred years ago, kings deliberately mixed cheap alloys into their coins in order to “profit” at the expense of their subjects. If the pro-penny faction approves of this sort of thing, they can take comfort in the profits to be made when government gets around to replacing the missing pennies with newly minted nickels and dimes.
The penny has been a staple of American life going back to 1792. Nostalgia notwithstanding, it may be time to let the penny go the way of the farthing and half penny, into the collections of numismatics and out of the stream of commerce.
“A nickel saved is a nickel earned.” Works for us.
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2002. All rights reserved.
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