The story is a topic that irritates the stew out of me. And, as typical of most media these days, the story reported it from essentially only one angle. What is interesting, is that this story seems to be rehashed every couple years.
Seems there are those in our great nation who feel the need to remove the penny from our monetary system. Yes, there really are those who advocate getting rid of the 1 cent denomination from our currency.
Their arguments seem so eloquent and educafied. The penny is economically unviable. The penny costs twice as much to make as its face value. The penny is valueless. The penny is inefficient. It has outlived its usefulness in our economy. No one uses them.
I'm not going to address each of these in depth, but I'll respond to each one.
Economically unviable? If the U.S. Mint were only creating pennies, then yes. But they don't. First, the Mint is not in the business to turn a profit. Second, even as acknowledged in the story, the cost for producing anything larger than a nickel in currency is merely a fraction of the face value. Hence, in the cumulative effect of creating coins and paper money, the Mint is not losing money.
The penny costs more to make than the face value on the coin? If there really is a problem with the raw materials going up in price (which raw materials by the way are not a fixed cost but are market based pricing), then let's make the coin out of a less expensive metal. I hear that the environmental crowd is always supporting the use of recycled plastic and tires in eco-friendly ways. I'm sure the technology could be used to create new pennies out of old pop bottles and the used tires that don't get shipped to 3rd world countries for resale where the tread wear minimum isn't as stringent as the U.S. Anyway, since we aren't on a gold standard (or even a silver, bronze, or copper standard), there is really no intrinsic value in the actual material of the coins used anyway, so it isn't like saying this here penny is 1 cent worth of gold / copper / nickel / whatever.
The penny is valueless? Value is in the eye of the beholder, isn't it? Stephen Dubner, co-author of that hit best seller book on apparently everything people need to know about, Freakonomics (Oh, by the way, I haven't read the book mentioned, so for you educafied sorts, that probably means all my comments here are automatically nullified... you need not read any further), thinks that because of inflation, it is not worth anything... and you can't buy anything with a single penny anyway. Oh puuulllleeeezz!
If there is no value in a penny, which is the base denomination of our currency, then how can there be any value in any multiple thereof? A penny is the measure for 1 in our monetary system. A dollar, is not a 1, but a 100. I admit, I don't know the word for it, but in math, I think it is conceptually something like decimals or base 10 or something like that. Even if a dollar is the 1, then unless we want to radically change our economic system to where everything can only be greater than or equal to 1, there will be the need for a penny. As long as there is the chance there will be a fractional dollar, the penny is necessary and has value as a measure of 1/100th of a dollar.
Of course, Mr. Dubner, the net cash from royalties you receive on sales of your books could increase if the publisher now has to figure it based off the nickel instead of the penny, don't ya think? Say you're contracted to get 4% royalty of the $15 wholesale cost of each book sold to retailers... you're making $.60 / book. That is easy. But say you get 4.2% royalty off $15 / book... instead of the $.63 / book, you can now expect to receive $.65 / book since they have to round up to the nearest nickel. That is an extra $2.00 per 100 books sold profit in your pocket. to put that in value terms, that is a couple extra bean burritos at Taco Bell... Of course, the publisher could change the way they figure your royalty and say it is on total volume sold or total dollar value sold, in which case you still only get $63 for the 100 books sold. Major bummer, dude! The penny is not valueless in the sense they can be cumulatively redeemed for something of value in goods or services...
The penny is inefficient? Okay, that is just stupid. Anything that involves the transfer of goods and services is inefficient if you want to use that argument. Jeff Gore, a young bio-physicist at MIT, really has too much time on his hands if he can come up with a formula to show how much money people lose each year thanks to the penny. Funny... the pragmatic part of life seems to indicate that no one is really losing any money or time on a daily basis because we have pennies.
The penny has outlived it's usefulness? Okay, let's look back at the argument about a penny's value. Just because we had a 1/2 cent coin for a few decades early in the nation's history doesn't mean the penny no longer has utility. Remember, the penny is the 1 in our monetary system. If their is no penny, or 1, then everyone is going to be hurt. It does not make things easier for anyone except those who don't like to carry the coin. Gasoline retailers still sell their core goods on 1/10th of a penny. And every single government entity that taxes operates on the mill basis (also the 1/10th of a penny).
No one uses them? Everyone uses pennies when they have to, just like everyone uses cash when they have to. The only ones who don't use pennies are those who don't need to worry about pinching pennies or relying on a budget.
Here are the reasons I think pennies should stay:
- Prices go up to whatever the new bottom denomination is determined to be... say a nickel. Those who are selling are not going to absorb any loss by lowering to the nearest nickel... that is not the "capitalist" way, they will raise to the next nickel, or maybe dime.
- Tax rates and actual taxes go up, because now everything has to be on the basis of 5 cents instead of 1. Where will it be most noticed? In sales tax, which is a use and consumption tax. Everyone will feel it, particularly those who have the least amount of cumulative pennies in their piggybank.
- Inflation increases exponentially as everything increases in price and the buying power of the dollar is lessened. In other words, get rid of the base 1 denomination, and every higher denomination gets devalued as well. Oh yeah Mr. Freakonomics... that is real smart!
- Those who control money (e.g. banks, big business, etc.) are not going to suddenly start recipricating the raise up to the nearest nickel / dime in what they have to pay to their customers. Do you really think that a bank is going to start paying you interest in nickel amounts? No, they aren't going to want to round up and give you 2 or 3 cents more, and they certainly won't get away rounding down a 1 or 2 cents worth of interest your money earns. But, on the other hand, they will love raising their "fees" to the consumer to help cover their increased costs... You know, along these same lines, those banks and credit cards that are doing things like rounding up the amount of the transactions made on a card to the next dollar and "depositing" those fractional dollars into a "savings" account for you are already operating on this model. They have created more work for themselves (what was one transaction now has suddenly become three), and you as the consumer are paying for it for the token promise that they are supposedly helping you be thrifty in saving some money and earning a few shekels worth of interest over the long run. Ummm... yeah...
Less precision in any system is not a good thing, except to those who will benefit from the coarser granularity.
If it makes sense to get rid of this measure, we may as well get rid of some other measures... say the gram from metric system of measuring mass... the inch from the English system of measuring length... the second from the measure of time... the cubit from the Biblical system of measuring arks... or number of curses uttered under one's breath as a measure of the severity of a paper cut...
