Penny Reign
America's least valuable coin endures.
Someday, probably within your lifetime, the one-cent coin will go away. The penny, the first coin minted in the United States, was obviated by inflation before most members of today's work force were born. Its production cost is more than half again as much as its face value. Its detractors include respected economists, forward-looking realists, and coastal cosmopolitans; its supporters consist largely of sentimentalists, hoarders, the zinc lobby, and the dwindling number of women named Penelope.
Ending the penny would put the United States about mid-pack in an international trend. Penny abolitionists point to New Zealand's success in getting rid of its own one-cent piece nearly 20 years ago. To our north, Finance Minister Jim Flaherty said in May that the Canadian penny—which has lost 98 percent of its purchasing power since the early 20th century—"eventually…will be eliminated." In Mexico the one-centavo piece has not been circulated since a 100,000-percent revaluation of the peso in 1992. While the E.U. introduced a one-cent euro coin during conversion to the common currency, the coin has since fallen into disfavor. Finland and the Netherlands have retired the essentially nameless €0.01 coin, replacing it with the "Swedish" system of rounding.
Penny haters insist they are motivated by unalloyed Taylorist logic. Their arguments for ending the copper-colored miscegenation of silvery coinage can be pretty compelling: The amount of time we spend futzing with small change amounts to a multimillion-dollar opportunity cost each year. To earn the federal minimum wage as a penny collector, you'd have to stoop and pick up one coin every five seconds. As you read this article, some yuppie, gold card in hand, is being made to wait in a Trader Joe's checkout line as an old lady sorts out her change—and if the cowardly morality of society will not allow us to kill the elderly for efficiency's sake, we can at least take away their coins.
Campaigners against the penny deploy the language of reason exasperated by mulish cant. Freakonomics co-author Stephen J. Dubner uses his New York Times blog to sniff at the "nostalgia," "inertia," and "ridiculous pro-penny defenses" of Abe Lincoln fans stricken with "pennycitis," opining that pennies are best used as floor tiling at hipster bars in Manhattan's meatpacking district. In a YouTube rant, anti-pennyist John Green denounces pennies as "bacteria-ridden disks of suck that fail to facilitate commerce." In a lengthy 2008 New Yorker piece about a visit to the U.S. Mint, David Owen declares, "A modern penny simply isn't worth enough to worry about." Owen and others fret about the problem of "negative seigniorage"—i.e., the Treasury loses money by supplying banks with pennies and nickels. (That's the reverse of the situation with bills and larger-denomination coins, whose high face value and low production costs create a profit for the government.)
While penny abolitionists depict themselves as an embattled fellowship, the organized pro-penny movement is fairly thin. Jarden Zinc Products sponsors the lobbying group Americans for Common Cents, though it's unclear how important lobbying is in the coin's survival. The penny lost its most forceful enemy when Jim Kolbe (R-Ariz.), author of numerous bills to stop producing the one-cent piece, retired from the House in 2006. But pennemies dominate the public relations battle. Coinstar, an operator of DVD and coin-redemption kiosks headquartered in Bellevue, Washington, does occasional polling and market research on public attitudes toward coins. While its most recent polling found 66 percent of Americans support keeping the penny as legal tender, more than a fourth "find pennies of little value and have no plans for their use."
But Mark Weller, executive director of Americans for Common Cents, says popular support for the penny goes beyond sentimental ideas about Abe Lincoln and thrift. "Most of the polling comes back to economic issues," he says. "People understand rounding to the nearest nickel. That would hurt working families every time they buy food or gas. It seems small in the individual transaction. But when you add them up, it comes to a significant amount. And merchants can't just round down on every transaction, because they work on very small margins."
There are some gaps in that argument. Although a 2001 study by the Penn State economist Ray Lombra suggested that penny retirement might lead to cumulative retail inflation, there's no reason rounding up would be more common than rounding down. And gas station prices are already calculated in tenths of a penny, with no hardship even for cheapskates like me who buy only 87-grade gas at the cash-only price.
But there is a potential inflation angle. Having to process cash and coins makes it slightly harder to game the money supply. While everybody talks about the government "printing money" to fight the recession, in reality there has been less physical money produced since the start of the credit unwind. Weller notes that many fewer coins are minted during slow economic times, because people open their penny jars and put those coins back into circulation. "You can almost plot GDP and coin production along parallel lines," he says. While the U.S. monetary base doubled in 2009, the mint actually produced fewer pennies than usual. And consumers in 2009 enjoyed brief moments of across-the-board deflation.
By 2010 we were supposed to be well into the era of electronic micropayments, which if it ever arrives could help bring down retail prices just by making fractional prices possible. Killing the penny, by contrast, pushes us in the other direction. It's worth noting that Americans' attachment to the penny is shared by our inflation-phobic allies in Germany, where popular support for the one-cent euro coin is the highest in Europe.
Will the penny survive? On one hand you have economists with their fancy book learnin', and on the other you have generations of retailers who know pricing items with 99-cent suffixes still gets people to part with cold, hard cash. It may be stupid, but I don't trust anybody who leaves a penny on the ground.
Tim Cavanaugh (tim.cavanaugh@reason.com) is a senior editor at reason.
