Let’s quit producing both the penny and the nickel.
On Super Bowl Sunday, President Trump announced that the federal government would stop producing pennies. Good for him. This is long overdue.
This week, I contacted a former Marine student, Stephanie King, who, in 2006, had approached me with a thesis topic. Often when students had ideas for thesis topics that other faculty found strange or unusual, the faculty would recommend that the student come to me, probably because they regarded me as strange and unusual. I prefer to call it open-minded.
Stephanie told me that she wanted to write a thesis arguing for getting rid of the penny. I don’t tend to say yes to thesis topics for which the person already knows the answer he or she wants. I need to see a solid case in such situations. So I asked questions. The big one was, “What does it cost to produce a penny?” Once Stephanie answered that the cost had already exceeded one cent, I agreed to supervise her thesis.
It was a pleasant experience. I always liked supervising theses for which the authors were motivated and knew where they wanted to go. The thesis is titled, “Common Cents? The Role of Pennies in the U.S. Economy,” December 2006. It can be found here.
Here’s the abstract of her thesis:
This thesis analyzes the impact that the elimination of pennies would have on the U.S. and global economies. This analysis is then compared to the Department of Defense’s policy of not utilizing pennies in any of its overseas bases, and examines the pros and cons of this course of action on the exchanges and its customers. The objective of this thesis is to identify the financial burden, if any, of maintaining pennies in the U.S. currency to both the government and its citizens. The body of this thesis explores whether or not the U.S. government should continue the production and use of pennies or if the DOD’s model could work in the greater economy. This thesis finds that the soundest approach the government could take to deal with this issue is the current legislation proposed by Arizona Representative Kolbe, who proposes that the government stop producing pennies, and that businesses utilize the rounding approach to deal with all transactions ending in cents.
And here’s one of the key paragraphs:
Every year, the U.S. Mint produces millions of new pennies to place into circulation. The penny is the most produced coin, yet it is the least circulated currency in the U.S. economy. If this is the case, it is easy to wonder why the government continues to produce new pennies. Historically, the production of pennies and their subsequent sale to banks has resulted in big money for the government, in the form of seigniorage. In recent years, this profit has decreased significantly from what it was in the past, primarily due to the rise in the cost of copper and zinc which is used to produce the penny. In May 2006, the U.S. Mint announced that by the end of the fiscal year, the penny would cost more to produce than what its face value was worth. Hence, this seigniorage would no longer exist. Not only would the government not be earning any profits from the production of pennies, but it would also be losing money by producing them. As a result, the government would be subsidizing the production of pennies, even though they are the least circulated currency in the economy.
The cost of producing a penny has increased substantially, as Timothy Taylor, the Conversable Economist, recently noted.
Indeed, as Tim showed, it’s also now time to quit producing the nickel.
