The penny is dying. I don’t use them in cash transactions anymore and I am far from alone in that regard. Most people think of them as nuisances, fouling cash registers, wallets and purses across the nation with a coin that long ago lost is raison d’être. Let’s face it; one (cent) is the loneliest number.
I first conceived of this article when I was helping to clean out my grandmother-in-law’s house. She owned a beautiful American penny eagle – a wall-hung, decorative heraldic eagle made from hundreds of individual pennies skillfully glued onto a pine-wood backer. Now, primitive, country-style antiques are not my forte, but this was a magnificent piece of American folk art. I felt compelled to take it home.
But this unusual piece of Americana also got me thinking about the fate of the humble one cent coin. The penny was the very first coin officially struck by the U.S. mint, along with its little brother, the half cent in 1793. At that time, the over-sized, 13.48 gram (0.48 ounce) coin was known as the large cent because its diameter was only slightly smaller than a modern half-dollar. By the early 19th century, the iconic large cent had evolved into a slightly smaller, but still hefty 10.89 grams (0.38 ounces) slug struck in almost pure copper.
In those days, a large cent’s bullion value as copper was nearly equal to its face value. By the 1850s, rising cost pressures caused the U.S. mint to abandon the large cent for the small cent format we are all familiar with today. The last large cents were struck at the Philadelphia mint in 1857.
The new small cent served the American public well until the late 1970s. By that time, raging inflation, coupled with skyrocketing copper prices, made the U.S. penny’s future existence an open question. After exploring various options, the U.S. mint finally decided to change the traditional 95% copper/5% alloy composition of the penny to a new and cheaper copper-coated zinc core. Since 1982, U.S. pennies have been, ironically, made from 97.5% zinc and just 2.5% copper. The penny has devolved into a small, ugly, debased monstrosity that reflects our modern coinage dark age.
Pre-1982 copper pennies, however, are actually worth more than their face value as copper bullion. It only takes about $1.54 in pre-1982 pennies to equal one pound, but #1 scrap copper currently goes for about $2.50 per pound, leaving sizable room for profit. Unfortunately, it isn’t legal to melt copper pennies (or nickels) for profit; the Federal government banned the practice in 2006. Even so, some people stockpile and trade pre-1982 pennies because they are a widely recognized form of copper bullion.
And that brings us to today. It may have been a long time coming, but the death of the penny is imminent. This lowliest of denominations has finally, after decades of uninterrupted inflation, become almost worthless. This wasn’t always the case, though. According to the U.S. CPI inflation calculator, a penny in 1950 had the same purchasing power as a dime does in 2017.
I can actually remember the last time I bought an item that was priced at one cent. It was 1986 and I was vacationing with a friend in the Appalachian Mountains. We stopped in at a general store (yes, there were actually a few general stores left back then – usually in remote areas) and I picked out a handful of individually-wrapped candies that were priced at only one penny each! But even at that time, penny-priced merchandise was an unusual situation.
Since the 1980s, the penny has collapsed into complete monetary irrelevance. Inflation has continued unabated for the last 30 plus years, leading to the terminal decline of the penny’s real value. In 1986 the penny was worth an already questionable 2.24 cents in today’s purchasing power. By 1996, it was worth a mere 1.56 cents. By 2006, that number had shrunk to a derisive 1.20 cents.
The death of the penny as a medium of exchange has already taken place. Vending machines don’t take pennies. Parking meters don’t take pennies. Toll booths don’t take pennies. Only Coinstar machines still accept pennies, undoubtedly because Coinstar’s parent company enjoys skimming 11.9% of the face value of your (and everyone else’s) useless penny stash.
The death of the penny isn’t just an American phenomenon either. New Zealand ceased minting pennies for circulation in 1988. Australia wisely abandoned its penny in 1991. Even the United State’s northern neighbor, Canada, finally gave up the penny in 2013.
There are good reasons why the death of the penny is spreading throughout the Anglo-American world. In addition to its miniscule buying power, rising commodity prices have rendered penny production a losing proposition. In 2016, it cost the U.S. mint 1.5 cents for every penny struck. These elevated mintage costs aren’t temporary either. The last year the U.S. mint actually made a profit on the striking and distribution of pennies was back in 2005!
In a rational world, the U.S. would have withdrawn the penny from circulation sometime during the 1990s. Unfortunately, this didn’t happen for two different reasons. One is good old-fashioned pork-barrel politics. Zinc producers have a lot to lose from the death of the penny. Over 9.1 billion pennies were struck in 2016 alone, using more than 22,000 metric tons of zinc worth an estimated $70 million. Unsurprisingly, one particularly vocal supporter of the U.S. penny is Jarden Zinc Products, the sole supplier of the copper-coated zinc planchets the mint uses to strike the coins.
But I personally feel that the real reason for the agonizingly slow death of the penny is that killing the smallest U.S. denomination would be a tacit admission of inflation by our political overlords. After all, the penny is the United State’s longest running denomination, having been used by Americans more or less continuously for 225 years. Being the politician under whose watch the penny finally dies sends all the wrong messages to your constituents.
It would be tantamount to announcing to every middle-class, voting American that inflation is alive and well and their money isn’t worth what it used to be. These are not the themes that successful re-election campaigns are made of. So instead we put on a happy face with talk of low inflation and ever rising stock prices. And the inevitable death of the penny is deferred for yet another day.
In many ways the looming death of the penny is just a symptom of much deeper monetary problems facing both the United States and the entire developed world. Global central banks have been recklessly expanding their balance sheets for years now, ostensibly to fight non-existent “deflation”. The total aggregate assets of the U.S., European and Japanese central banks have increased from around $4 trillion in 2008 to about $14 trillion in late 2017. This represents an almost 15% annualized expansion of the base money supply over the last 9 years.
While the negative monetary and social consequences of these actions have been largely deferred, they will come due at some point. This is one of the reasons I advocate the purchase of fine art, antiques and other tangible assets for investment purposes. The penny may be dying, but that doesn’t mean your financial dreams have to die with it.
