Why Are Pennies Still a Thing?
A penny was worth a decent amount in 1864. Now it costs more to make it than its actually worth.
The penny was a totally useful form of currency when it was officially made legal tender in the Coinage Act of 1864. Back then, you could get a pound of butter or a dozen eggs for less than 30 cents. Save up your pennies in the 1860s and you could buy your groceries for the week.
Even up until the 1990s, a penny was still worth something, albeit not much. When I was a kid, my friends and I would ride our bikes into town to buy penny candies at the local gas station: one cent-a-piece for tiny gummies and chocolates the size of a fingernail. Nowadays, I don't even think you can buy those.
And even if you can, the value of the penny has long since dropped below useful levels. Production costs for manufacturing the penny have been steadily increasing, according to the United States mint, and have exceeded the coin's face value for close to a decade. Last year, it cost 1.66 cents to make a penny (a nickel costs 8 cents). In the 80s, the US Military decided the coins weren't worth shipping overseas and eliminated the penny from their international bases. I've literally seen people so annoyed with pennies, they throw them in the trash.
So why the hell are we still using a piece of coinage that lost any sort of meaningful value generations ago? We might as well be using the sixpence.
"The benefit of continuing to mint and use the penny is essentially zero, but there are real costs associated with making and using the penny," said Jeff Gore, an MIT professor who has been pushing to eliminate the penny for fifteen years through his group Retire the Penny. "It's an absurd situation. We're spending tax money to make something that is worthless."
Gore said a combination of inertia and pressure from the metal manufacturing sector keeps the penny alive. The biggest pro-penny lobby group (yes, there is a penny lobby group), Americans for Common Cents is backed in part by a major zinc producer (pennies are 97.5 percent zinc). The group uses a number of arguments for the continuation of the penny, including the risk that prices would increase noticeably if the coin was taken out of use.
"There's no reason to believe that's the case," Henry Aaron, a senior fellow in economic studies at the Brookings Institute, told me. He said there were some costs associated with changing over equipment—some vending machines and parking meters still used pennies—but most of that transition has already taken place at this point.
"Change is always difficult and I think there's just a resistance to it. I can't give you a very good reason for why it's still around."
Many countries have done away with their smallest currency including Britain, France and Australia. New Zealand ditched its one and two-cent coins in 1989 and Canada retired its penny in 2012. The process requires vendors to round to the nearest five cents (so a $4.92 sandwich now costs $4.90) as banks slowly pull the penny out of circulation. The US even retired its smallest coin once before when it ended use of the half-cent in 1857. None of these countries have reported a noticeable effect on inflation, but the multiple case studies don't seem to be enough to budge practice here.
"The United States is remarkably immune to benefitting from the experience of other countries," said Aaron. "'It's just different here,' is the attitude."
But Gore and others who support retiring the coin are actively working with various representatives to get a bill before Congress and put an end to the penny for good.
"It's not that I'm obsessed with the penny. It's just that there are about a dozen things out there that I think are clear, non-partisan decisions we could make that would improve the function of our economy and I think somebody needs to advocate for these things," Gore said.
President Obama isn't against the idea, either, and included language about the need to either eliminate the penny or find a way to make it more cheaply in the 2015 fiscal budget. The government has come close a few times, too, but there just wasn't enough juice to push the bills over the line.
Gore said it seems inevitable the penny will face retirement eventually, it's just a question of how much money we're willing to waste in the meantime. Aaron wasn't so sure it was an inevitability, but thinks if we do finally usher out the penny, we might as well go full hog.
"I'd be all for getting rid of nickels, too."