Nicholas Schleif
ENGL191 Final Paper
The Termination of the U.S. penny
Let's begin with a riddle: what's small, round, has Abraham Lincoln's face on it, and costs the United States nearly $1 billion dollars every year? The answer is the U.S. penny. The penny is a lot like Lindsay Lohan. At one point both had good intentions, were well respected, and were innocent. However, due to several factors both have been transformed, corrupted, and an intervention is necessary. When the penny was first introduced in 1793 it had good motives and truly was a good idea. When innocent people were burned alive in the Salem witch trials, it was also a good idea. In this paper I will show you why the penny needs to be eliminated with 5 main reasons. I'll even explore the counter-argument to show you that there are no legitimate reasons to keep the penny in production or use.
I’d like to start by discussing the past and present production of the penny. The penny was first minted in 1787 by a private mint, and the U.S. mint began to publicly mint the penny in 1793 [1]. When the penny was first minted, it was composed of 100% copper. Copper, as we will discuss, is an extremely valuable metal that has many other uses besides the penny. During times of war resources such as copper metal were greatly needed, and because of this the composition of the penny changed many times during war. For example, no pennies were minted in 1815 because copper was being used for the War of 1812 . Also, pennies were made of zinc-coated steel during the year 1943 due to copper shortages of World War II [3]. In 1837, the composition of the penny was changed for the first time to 95% copper and 5% tin and zinc (a.k.a. bronze). The composition was again changed in 1856 to 88% copper and 12% zinc [4]. The next major development happened in 1909 when Abraham Lincoln was the first historical figure to be placed on a U.S. coin; he was placed on the penny. The physical makeup of the penny stayed the same until 1962 when the small amount of tin was removed, making the penny 95% copper and 5% zinc. This stayed until 1982, when the composition was changed to 97.5% zinc and plated with 2.5% copper [5]. To be honest, changing the composition to 2.5% copper was the only smart thing that the U.S. government has ever done with the penny. The production cost of the penny has continued to rise as copper has risen in price. In 2007, people were concerned when the price of producing the penny exploded to 1.65¢. Some resorted to melting the penny for the metal, and reselling the metal. This makes complete sense because the metal was worth more than the penny! At this point, the government should’ve eliminated the penny while the cost was under 2¢/penny. But alas, the history of the penny continues today. Now that we know about the history of the penny, let’s talk about the current state of the penny.
As stated before, the current composition of the penny is 97.5% zinc and 2.5% copper. However, it still has an orange-ish color because the zinc is plated with copper on the outside. Before I examine the cost of making pennies, let’s talk about the toxicity of pennies. The modern penny is mostly made of zinc, which is toxic to humans and animals. The effects of zinc poisoning are corrosion of stomach lining, ulceration, nausea, vomiting, pancreatic dysfunction, and even death in some cases [16]. Pennies are physically dangerous for small children and pets, but we’re just getting started with the list of negative things the penny brings.
In 2011 the U.S. mint produced about 4.3 billion pennies, and it costed 2.4 cents to make a penny [6]. That’s 1.4 cents lost per penny, and with some simple math:
$ .014 lost/penny × 4.3 billion pennies = $60,200,000 lost in production. Over sixty-million dollars were lost in 2011 by merely producing the penny. This an enormous amount of money, and I will try to put it in perspective for you. According to Saint Cloud State University’s website, the student to faculty ratio is 19:1 [7], and there are currently 21,939 students enrolled [8]. This means that there are about 1,155 faculty at SCSU. If the loss for minting the penny in 2011 was divided among the faculty, each member would get $52,121.21. If this amount was divided among the students, each student would receive $2,743.97. This is just the loss in money, let’s consider the loss of copper. In 2011 each penny weighed 2.5 grams [9], and as we’ve stated the copper percentage was 2.5%. This means that each penny used .065 grams of copper, so what? Well, finding the total copper used:
.065 grams copper/penny × 4.3 billion pennies = 268,750,000 grams of copper used
268,750,000 grams ÷ 453.59 grams/pound = 592,495.43 pounds of copper wasted in 2011. Almost 600,000 pounds of copper were wasted making pennies in 2011. According to copper.org, about 439 pounds of copper are used to build the pipes, wiring, and other material for an average house [10]. This means that the U.S. mint wasted an amount of copper that could’ve been used for 1,350 homes ONLY in 2011. As we are starting to see, the penny is very wasteful in its production and material. Surely this is all the penny wastes, right? Wrong. I will describe next why we don’t just change the composition and forget about the penny.
The physical loss of minting pennies is staggering, but it shouldn’t be the only number you consider. We haven’t looked at something perhaps more valuable than money: time. There is a concept in economics called opportunity cost. It basically says that while you are spending time doing one thing, you could be spending time doing something else. Walgreens has reported that people spend about 2 - 2.5 seconds using pennies in their transactions on average [11]. Let’s also consider that a person makes a transaction like this once a day, it doesn’t matter if it is at Walgreens. In a year this is 730 seconds wasted. In 2011, the average wage was $16.57 [12]. By doing some more math:
730 seconds ÷ 60 seconds ÷ 60 minutes × $16.57/hour = $3.36 in time wasted handling pennies per person per year. Multiplying this by the number of Americans (about 300,000,000) you get $1.008 billion in time wasted handling pennies per year. Remember, this calculation doesn’t include what the penny is made of. If the penny was made of dirt, it would still waste about $1 billion in handling costs. This number is extremely important in considering the penny debate. It doesn’t matter the composition, the entire concept of a one-cent coin is flawed and wastes valuable time. We can clearly see that the penny wastes a lot of money, copper, and time. Considering this, some want the penny eliminated but they don’t know how to do it. The answer to look toward other countries.
Getting rid of a small value coin like the penny isn’t a mystery, many other countries have successfully done this. Australia removed its one-cent and two-cent coins in 1992, Israel removed its one-agora coin in 1991, the United Kingdom eliminated its half-penny in 1984, and Canada recently stopped production of its penny in March 2012 [13]. I’d like to especially note Canada’s penny termination, because it was very recent. It’s also important to note that Canada was only losing $11 million per year compared to the U.S.’s $60.2 million per year production cost. Canadians were losing less money on pennies than the Americans, but they eliminated the penny before the U.S. How exactly did Canda ‘eliminate’ their penny anyways? The only thing the Canadian government has done so far is stopped producing the penny. The Canadian penny is still legal tender, and when stores receive them they will send them to the government. What if I buy something that’s 99¢? All other countries that I’ve mentioned(Canada will do this) round all transactions to the nearest nickel(or next highest coin). Possibly the only disadvantage of Canada eliminating their penny is that credit card users still pay the exact amount. Citizens in the other penny-banning countries also pay exact amounts with credit cards. This raises a new question: what economic effects does rounding to the nearest nickel create?
The answer is virtually none: rounding to the nearest nickel creates almost no negative economic effects. The countries of Australia, the United Kingdom, Canada, and Israel have all had their penny or low value coin eliminated with no serious economic effects. The United Kingdom eliminated their penny back in the 1980’s and there have been no effects since. You can also look at the probability of rounding. Imagine the amounts of 8¢ - 17¢. Eight, 9, 10, 11, and 12¢ will all round to 10¢ and 13, 14, 15, 16, and 17¢ will round to 15¢. Out of these 10, or any 10 amounts, 5 will round up and 5 will round down. This means that theoretically it’s an equal probability of rounding up or rounding down. Robert Whaples, a professor of economics at Wake Forest University, has also pondered this question specifically for the U.S. [14]. Whaples gathered data on nearly 200,000 individual transactions in 20 stores of a convenience store chain. In 185,714 of these transactions the customer actually gained money, which added up to about 1/20 of a cent per transaction to the customer. This means that the company lost about 75¢ per store per day. Some will argue here saying that the store will lose billions of dollars blah blah blah. Most convenience stores are multi-million dollar companies anyways. Remember the terms we’ve established: pennies waste about $1 billion a year along with valuable resources. It’s certainly worth the small cost at the millionaire CEO’s expense to eliminate the penny. Let’s now examine the most important part of this discussion: the usage of the penny.
So far we’ve established that the penny costs the government $60 million to produce, $1 billion in time wasted, other countries have successfully eliminated their penny or equivalent, and there are virtually no negative economic effects of rounding. All of this might be endured if the penny was useful and still used. However, the penny cannot be practically used for transactions. The definition of currency is something that facilitates the exchange of goods. The penny no longer serves this purpose because it always needs to be combined with higher value coins. When the penny was first minted, many things could be purchased with just a penny or two. In the 1930’s, cabbage was about 3 cents per pound, peas were about 4 cents per pound, and bread was about 8 cents per loaf [15]. I challenge anyone reading this to think of more than 5 things to buy for 4¢ or less (5¢ items can be bought with a nickel). Even if you can think of one or two, the penny has extremely limited purchasing power in today’s market. Well, they can still be used like other coins right? Wrong. Almost all vending machines, toll booths, laundry machines, and parking meters don’t accept pennies . The main things that people use coins for don’t even accept pennies. Perhaps the worst thing about the penny, despite the cost and time wasted, is that paying for a transaction solely in pennies is considered an insult. If a credit card company makes people mad, they might try to pay debts in all pennies. However, some companies don’t even accept all-penny payments! When companies don’t accept a legal form of currency as payment, the currency is obviously failing its job. There are even services like Coinstar, which convert change into dollar bills and take about 10% of the coins you put in. Think about this service for a minute. They are giving you less money than you put in, just so you have the money in a different form. This is the end of my argument to abolish the penny. I literally don’t know how I could make it any clearer and logical to eliminate the penny. However, some people want to keep the penny for various reasons. I will now explore and dismantle the counterargument.
People who are pro-penny(a.k.a. anti-logic) say that if the penny is abolished charities will lose millions of dollars. However if we look at the charity revenues in the countries that have abolished their penny or low value coin, we see no major change. Most charities started to ask for the new lowest value coin. In the U.S.’s case, charities would probably ask for nickels and they wouldn’t lose money. This way the charities will only need 1/5 of the nickels in order to have the same amount in pennies. Pro-penny people also say that the penny commemorates Abraham Lincoln and it would be a disgrace to ban the penny. Abraham Lincoln was certainly an important figure in United States history for his role in trying to prevent a civil war and abolish slavery. However, Abraham Lincoln is already on the $5 bill(which won’t be going away anytime soon). I’m confident that if Abraham Lincoln knew his face was on a small toxic piece of metal that costs nearly $1 billion every year to fail at its job, he would roll over in his grave. The last point of the counterargument is to keep the penny for its sentimental value. The essence of this point is to keep it because it has existed for a while. Should we keep malaria because it’s been around for a long time? No, of course not. The penny is no different: there are clear disadvantages with no advantages.
Let's recap one final time what we've discussed. The penny: is toxic to humans and pets, costed $60.2 million to produce just in 2011 and $1.008 in time wasted in 2011, it fails to perform its job, and it is a sign of annoyance. Many other countries have eliminated their penny equivalent without any negative side effects and the proposed rounding system would be fair. If you carefully consider all of the points I've expressed, it should be clear that the U.S. penny needs to be abolished. The penny really did have good potential and usage WHEN IT WAS CREATED, but now it is obvious that the original plans backfired. Especially in today's economic state, everything we can do helps. Why would we keep the penny and lose millions of dollars and time worth billions of dollars? It simply isn't logical. If you hand is injured and you put it on a lit stove, the logical action is to remove it. With everything considered, I'd like to end this paper with a question. What would you do about the penny in the United States? Would you keep it, or eliminate it?
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