Half Penny for a Dime

Is a penny worth it’s production? Yes and no. It does cost more to produce a penny than it’s face value. In 2005 it cost 0.97 cents (just under it’s cent face value). In 2006 the cost per penny went up to 1.23 cents. The last estimate I found for 2011 was 2.41 cents per penny. So basically it costs more than twice as much to produce a penny than it’s worth in a store. In 2011 the U.S. Mint put 4.9 billion pennies into circulation. If I did my math right, it cost the U.S. roughly $118 million to produce $49 million worth of pennies.

Now let’s look at the nickel. In 2011 a nickel cost 11.18 cents to produce.

That would seem to indicate that making pennies and nickels is pretty foolish. Some argue, however, that we must also keep in mind that pennies and nickels aren’t just used one and thrown away. Each coin changes hands hundreds, maybe thousands of times before it falls out of circulation. It doesn’t cost 2.41 cents each time we use a penny. Rather we get at least 100 cents worth of use out of each 2.41 cent penny. That seems like a fairly good return.

I’m not an economist so here’s how I’m seeing it. Let’s say I buy a hammer from Hammer’s R Us. Let’s say further that they produce the hammer for $10 but I buy it for $5. It doesn’t matter how many times I use the hammer, or how many times the hammer changes hands (I give it to a friend who gives it to a friend who gives it to a friend…) the manufacturer still lost money on the deal. Unless they start charging more for the product than it costs to produce they’ll go bankrupt. And the money the government is losing on the deal isn’t the government’s money – it’s my money. As a citizen I’m a shareholder in Gov Inc.

Personally I’m thinking it’s time to either find a cheaper way to manufacture our product or else cut the product. Before we do anything rash, however, let’s take a look at history. Has the U.S. ever had to discontinue coinage? Yep. The half cent piece was discontinued in 1857 and the economy didn’t collapse. “Well that’s a half cent,” you may say. “That’s hardly comparable.”

“Au contraire,” I reply. When the half cent was discontinued its day to day buying power was about equal to today’s dime.

What about other countries. Yes, an increasing number of countries are discontinuing low value coins due to their declining purchasing power. Canada, Sweden, Norway, Brazil, and Israel are but a few countries which have already discontinued their lowest value coins.

My opinion is the U.S. should discontinue producing both 1 and 5 cent pieces (i.e. pennies and nickels) and round everything to the nearest ten cents. Of course doing this would also require us to include sales tax in the sticker price of products, a practice also already in use in most countries around the world. What a shock it would be to look at the price of an item on the shelf and actually know how much it was going to cost you at the checkout stand. I don’t know if we could handle it.

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