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When President Trump announced last month that he had directed the US Mint to stop coining pennies, he gave only one reason for doing so.
"For far too long the United States has minted pennies which literally cost us more than 2 cents. This is so wasteful!" he posted on social media. "I have instructed my Secretary of the US Treasury to stop producing new pennies."
If you've heard that argument once, you've heard it a dozen times. The same point has been made over the years by everyone from HBO's progressive commentator/comedian John Oliver to the centrist Chicago Tribune columnist Steve Chapman to Iowa's staunchly conservative US Senator Joni Ernst.
On the surface, the observation seems logical and germane: Why keep minting pennies that cost more than a penny to mint? What good is a 1-cent coin that takes (according to the US Mint's most recent annual report) 3.69 cents to produce?
But that line of reasoning makes sense only if the value of a penny is determined by the physical substance the coin is manufactured from.
For most of history, that is exactly what a coin's value was based on. In ancient Rome, for example, a denarius was understood to contain 1⁄72 of a Roman pound of silver; in 17th-century Britain, a gold guinea was made with approximately one-quarter of an ounce of gold. When the value of the precious metal fluctuated, coins became more or less valuable — and the change in value was reflected in how much merchants were prepared to exchange for them. When rulers debased their coinage — either by shrinking the size of a coin, or replacing some of the silver or gold with a cheaper base metal — prices soared.
Governments are still perfectly capable of reducing the value of money and thereby causing inflation, of course. But they do so now by artificially boosting the money supply, not by decreasing the precious-metal content of their coins. Which is why the whole business about what it costs to produce a penny seems to me completely extraneous.
In today's US economy, the value of most money is not determined by the material from which it is made, but by the social trust placed in it. Pennies — like quarters and five-dollar bills — are examples of fiat currency. They have value primarily because the government says (and people accept) that it does. It isn't the intrinsic worth of the penny's content that matters; it is society's willingness to accept it in exchange for a penny's worth of goods and services. The same is true of nickels, each of which costs almost 14 cents to produce. The fact that virtually no one is clamoring for abolition of the nickel suggests that the "a-penny-costs-more-than-a-penny!" argument isn't a serious one.
To be clear, I am neither pro-penny nor anti-penny. I have no strong feelings on whether our smallest coin should be abolished.
I can certainly see a strong argument for doing so: The purchasing power of the penny has dwindled to almost nothing. Most people won't bend over to pick up a stray penny in the street. A coin that the public routinely treats as litter is, pretty much by definition, a useless coin. So why should the government keep spending $85 million a year minting coins that are effectively worthless? Other countries, including Canada, Australia, Sweden, and New Zealand have all pulled the plug on their one-cent coins. Presumably the sky wouldn't fall if America followed suit.
Then again, I can see a decent argument for continuing the status quo. Eliminating the penny will necessitate minting more nickels, which, as noted, cost even more to make. Moreover, notes The New York Times, "many states have a sales tax that specifies taxes collected must be rounded to the nearest cent, so they would probably have to modify their laws to accommodate cash purchases." That would mean rounding all prices up to the next-highest nickel. Over time that would cost consumers many millions of additional dollars — even those who never pay for anything with cash.
For now, I remain an agnostic on the question of whether the penny should stay or go. What I do object to is the endlessly flogged but irrelevant observation about a penny's production costs. Scrap the cent or keep it; I don't care. But let the decision be based on sound reasoning, not on gaudy talking points that add nothing to the debate.
Jeff Jacoby is a columnist for The Boston Globe, from which this is reprinted with permission.
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