Why the Penny Should be Eliminated
Death to Pennies
On a yearly basis, the United States Mint produces roughly eight billion pennies.Now that’s a lot of pennies. Pennies have been around since 1793, and continue to be the longest living form of minted exchange in the U.S. to this day. Pennies haven’t always had it easy though; they have gone through many phases of composition change throughout the years, have constantly been on the chopping block, and have wound up in trash cans, fountains, sewers, smelts, and dumps all across the nation.
In order to understand why these "terrible things" are happening to a bust of Abe Lincoln marvelously crafted on a piece of copper, we must first take a look at the costs associated with the manufacture of pennies; second, the amount of time and energy that is necessary to deal with pennies, and third, why the United States would be better off without them.
Each penny that is minted by our government costs nearly 2.4 cents to make, not including distribution costs. With nearly eight billion pennies being minted annually, generating $80 million dollars of pennies, costs are around $192 million dollars.Now you don’t have to be a financial expert to know that making something for 2.4 cents, when it’s really only worth 1.0 cent, is not a very sound investment (see Table 1).
Costs are making pennies less and less valuable as a form of exchange. Materials from which pennies are made continue to rise in price, causing the government to select other materials to use in penny manufacture. “Despite popular belief, since 1982 pennies have only been copper plated, not copper through and through. Much less expensive zinc makes up 97.5% of the mass of a penny, the rest is a copper coating.” 1(see Figure 1)
TIME & ENERGY
Because there are so many pennies in circulation, businesses and companies are losing precious time and money counting, collecting, and dealing with pennies. One company states that each cash transaction dealing with pennies, takes 2 to 2.5 seconds longer than an average transaction, wasting over 12 minutes per customer, per year, and that’s just at the register.2
If we break this down even further, Jeff Gore, an MIT scientist states, “America wastes time dealing with pennies, counting them out in stores, giving them back in change, fishing them out of the couch, and putting them in penny jars. You come out to a wasted time of 2.4 hours per year, per person, which actually is quite a lot. …with wages in the country averaging $17 an hour, that means pennies are costing each of us $41 a year.And you multiply that by 250 million adults in this country, you come out to ten billion dollars per year.”3
The largest copper mine in North America is located in Arizona, and typically processes one ton of ore in order to produce ten pounds of pure copper. Many years ago, a man named Walter Luhrman, found a source allowing him to process and generate the same ten pounds of pure copper from every 30 to 45 pounds of ore. Luhrman, a metallurgist in southern Ohio, found a deposit of copper worth tens of millions of dollars without ever setting foot in a mine.
“The copper deposit that Luhrman worked wasn't in the ground; it was in the storage vaults of Federal Reserve banks, and, indirectly, in the piggy banks, coffee cans, automobile ashtrays, and living-room upholstery of ordinary Americans.”4 The federal government shut downLuhrman’s extremely profitable business in December of 2006.
A penny minted before 1982 contains 95% copper and 5% zinc; at today’s prices, the copper value of a pre-1982 penny is worth 2.5 times as much as a penny itself. People have been, and continue to illegally melt pennies down to resell them for their copper value.If this doesn’t make us think about finding a solution to the penny problem, I don’t know what will.Maybe it’s time the penny is done away with.
The United States has been down this road before; the penny wouldn’t be the first piece of coinage ever put to rest; the U.S. did away with the half-penny long ago. “Ironically, since the half-penny was eliminated in 1857, consumer prices have risen more than twenty-fold [Williamson, 2005], so that the half-penny of 1857 is the equivalent of today’s dime, having a value of 11.3 cents in 2006 dollars.”5 This would be comparable to the United States getting rid of the dime in our day and age.
ROUNDING. The solution to the problems we are facing with pennies is complex, yet simple. Since the early 1980’s, U.S. Military bases overseas have been rounding transactions up/down to the nearest $.05 cent denomination.6 Numerous studies have been done to credit/discredit the consumer benefits and effects of rounding to the nearest $.05 cent denomination.
According to economist Robert Whaples of Wake Forest University, eliminating the use of the penny altogether, and rounding up or down to the nearest five cent denomination actually favors the consumer, although it is quite minuscule.5Effectively, rounding will not make a real dent in either the consumers, or the businesses pocket book.In fact, both would benefit from the time they are saving by not using pennies at all.
CONCLUSION. My conclusion is that the United States Mint should discontinue the production of pennies.We cannot afford to continue losing money on production of one of the only things our government actually has control over.Our government is already pinching pennies; it’s time to stop making things more difficult on the financial state of our country.If people want to continue using pennies after production has ceased, so be it, let them waste their time and money, but not the time and money of our government and tax payers.
1.Obama wants cheaper pennies and nickels, Chris Isidore, February 21, 2012 http://money.cnn.com/2012/02/15/news/economy/ pennies_nickels/index.htm?hpt=h p_t3,accessed November 9, 2012.
2.The Penny Stops Here,Sebastian Mallaby, September 25, 2006, http://www.washingtonpost.com/wpdyn/content/article/2006/09/24/ AR2006092400946.html, accessed November 9, 2012.
3.Should We Make Cents? David Browning, February 11, 2009, http://www.cbsnews.com/8301-18560_162-3801455.html? tag=contentMain;contentBody, accessed November 10, 2012.
4.Penny Dreadful. By: Owen, David, New Yorker, 0028792X, March 31, 2008, Vol. 84, Issue 7. Accessed November 7, 2012.
5.Whaples, R. Eastern Economic Journal, Vol. 33, No. 1, Winter,2007, http://college.holycross.edu/RePEc/eej/Archive/Volume33/ V33N1P139_146.pdf, accessed November 11, 2012.
6.Congressional Record – House. Proceedings and Debates of the 107th Congress, Second Session. Vol. 148, No. 32, Pg. H959 (page 21 of the PDF). Accessed November 11, 2012
7.United States Mint, 2011 Annual Report, pg. 11, http://www.usmint.gov/faqs/circulating_coins/index.cfm?action= faq_circulating_coin. Accessed November 10, 2012.