Let’s privatize the ban on pennies

pennies

For the photo I thank Jacob Ma-Weaver.  I joined this privatization effort some time ago, as I take pleasure in throwing my pennies away (much to the consternation of my wife).

Comments

It's funny how the government can even screw up their own coinage. That's not because I'm a libertarian, either, it's because the government can screw up their own coinage and it's funny.

I'm unclear how the penny is 'screwed up'. In the sign above it laments that the 'average american' spends 2.4 hours a year 'handling pennies'. It's highly unlikely that 2.4 hours could be usefully captured doing anything else more productive. The sign announces that sales will always be 'rounded down' to the nearest nickle. OK but then consider the cost incurred. Every transaction this store does will loose an average of $0.025. That loss is happily being born by the store owner rather than the consumer but it's still an economic loss and has to be set against the supposeded gains of reduced toxic materials being used to manufacture pennies and the time saved by counting out pennies as change.

The 2.4 hours will likely be recaptured by their getting back to their office (or whereever) a few seconds earlier than they would have if they'd had to deal with pennies, for each of the several thousand transactions they make in a year.

The store saves money by not having to hire as many checkout clerks (or being able to use more of their time for tasks other than checkout), so there may be no "loss" to the store. But even if the store does lose money from this policy, it is a transfer to the customers, not an economic loss. It doesn't have to be set against the reduction in toxic materials, etc.

The only way there's an economic loss is if the increased effective quantization of prices leads to prices that less accurately reflect supply and demand, causing misallocation of production and consumption, with this effect being greater than the savings in time for the store and customer. Of course, any significant misallocation is unlikely, considering that people throw their pennies into jars to never be used again at present. (Or in my case, until recently, with pennies in Canada having now been eliminated.)

Actually there has to be a loss to the store. If there wasn't, then why were the items in the store priced in such a way as to generate pennies to begin with?

As a marketing gimmack this may work out for the store, but in reality if pennies really were costing the stores more than they were worth then no transactions would ever produce penny balances to begin with.

The only way there’s an economic loss is if the increased effective quantization of prices leads to prices that less accurately reflect supply and demand

Agreed, so if supply and demand 'want' a price to be $1.02 then you will incurr an economic loss of either $0.02 rounding down or $0.03 rounding up. If this argument is hard to picture, imagine instead of the argument was that every sale would be rounded down to the nearest dollar instead (or nearest $ten dollars!). No doubt time will be saved by never having to deal with any coins. Cash registers would be less expensive if they didn't need little holes to put coins in.

Prices in stores go to the penny because many manufacturers want a specified price on their product and don't take kindly to discounting that price. Also, .99 prices really do sell better than whole dollar prices, and certainly better than the truly strange prices you need to have to get sales tax to always come out to a specified round number.

For better or worse then this indicates prices matter at scales lower than a nickle. Maybe you can say it's irrational that you get more sales moving from $1.00 to $0.99 than you do moving from $0.99 to $0.95. But that's the market for you.

As for sales tax, if you price each item so that when sales tax is added it comes out to an even number, you don't need to worry about pennies. Can't pin the blame there.

"so if supply and demand ‘want’ a price to be $1.02 then you will incurr an economic loss of either $0.02 rounding down or $0.03 rounding up"

I think the loss is much less than the amount of rounding. Think of the price as the solution to a problem of optimizing social welfare. At the optimum, the derivative is zero. So a small change has zero effect - or rather, it's non-zero only because of the second derivative, but close enough to zero for 2 cent changes, I would think.

You forgot that 99cent prices are a legacy of cash registers that ring, and therefore keep clerks from ripping off store owners.

I'm unclear what 'social welfare' you're talking about? Saving consumers time? Wouldn't happy consumers go to stores that set their prices so pennies were never or rarely needed? Avoiding 'toxics' in making pennies? Wouldn't the labor market for people manufacture pennies reflect a wage premium for such toxic exposure? (Or why not simply keep pennies but substitute something less toxic if that's the real problem?) Saving time for those who man cash registers? Again like consumers if this was a factor why wouldn't stores simply set prices in a way that optimizes the use of the time of the people manning registers???

I've little love for the federal leaders in Canada, but their decision to get rid of the penny I fully support. I cant imagine anyone (save the donation boxes at checkouts) would disagree.

It worked in NZ too. But Canucks and Kiwis are finer, nobler people.

The Kiwi 5c coin was also eliminated 2006. The 1c, and 2c in 1990.

"Making pennies is toxic"

Is making nickels n dimes and quarters any less toxic?

In X years they'll be just as toxic where of course X=f(inflation)

What does that have to do with anything? Do you think if the penny is eliminated the total number of coins will remain the same?

inflation isn't the cost of goods going up, it's the value of your savings going down. the penny isn't worthless, it's worth less due to government induced inflation.

Sorry, I didn't get your point. I'm saying, go right ahead and eliminate the penny but "making 'em is toxic" sounds like a silly argument.

"Stop wasting resources on making a useless thing" sounds more reasonable.

Sorry wasn't trying to be glib. My point is that other coins also being toxic doesn't change that reducing the number of pennies is still a positive, unless you believe that there will be an increase in other coins to compensate for the elimination of the penny (obviously very unlikely).

I agree with your point, but I think they were trying to frame it as the toxicity aspect being icing on the cake rather than suggesting we stop any process that involves a "toxic" process (whatever that means).

I am annoyed by people using the toxicity card at random. While they are at it, might as well say "Making pennies encourages child labor!" or "Making pennies kills animals" or some such.

I bet some third world zinc mine contractor employs 16-year-olds on the sly and somewhere someone's donkey probably fell dead eating cadmium laced metal-refining runoff.

Havent debit cards already done this?

By sending the pennies to Visa and Mastercard. Do the credit card companies have a position on the elimination of pennies? You would think that they would want to make it as annoying as possible to use cash.

Maybe that's why the US doesn't have convenient VAT pre-added pricing! It's the Credit Card lobby!

When it comes to taxes, the more visible, the better.

Whether noncash transactions use pennies is immaterial. The discussion only concerns rounding cash payments. Pennies and fractions of pennies can still be tracked electronically.

A local market on St John USVI has been doing this for years. The funny thing is you feel like you are getting a deal when they round down and give you more change! I need to get out more.

Rarely receive pennies in change anymore. For me the crucible moment was when I handed over all my spare change to a beggar. As he walked away, I saw him tossing the pennies to the street.

Essentially this happened to me at a Burger King. I didn't pick up the pennies in the change they put on the counter, so the counter guy picked them up and put them in the trash. Somehow (though I'm not sure I can put my finger on quite why) that seems even more significant than a beggar refusing them.

Yeah, dump the pennies and spare us Lincoln's ugly countenance. I like the Loonies and Toonies too - we need them in the US in place of the dollar bills.

They've rounded down? Suuuuure they did.

Get rid of the penny. Get rid of the nickel. (when the half-penny was eliminated many years ago, it was likely worth about as much as a dime today, per http://www.nytimes.com/roomfordebate/2012/04/04/bringing-dollars-and-cents-into-this-century/please-finally-end-the-penny ). Get rid of the paper dollar in favor of the dollar coin.

Why don't we do these sensible things? Because this would be a political acknowledgment of past inflation, and there would be stupid political fallout. (e.g. "Did the Democrats care about inflation eroding your savings and your purchasing power? NO! The Democrats got rid of the penny!") [insert "Republican" in that last sentence if you wish]

The survival of the penny is a tribute to the toxic political environment that makes even obviously sensible things extraordinarily difficult.

Perhaps we could get the dollar coin accepted by putting young Elvis on the $1 coin and fat Elvis on the $2 coin.

Getting rid of the nickle,

Then there becomes an incompatibility between dimes and quarters...My solution.
Get rid of the dime, too, and replace it with "the bit." The bit would be worth 1/8th of a dollar.

I have thought way too much about this issue, and here's what I would do:

1. Phase out the penny and the dollar bill and introduce $1 and $2 coins, which can use the same drawers in cash registers.
2. Phase out the quarter and the nickel, and replace with a 20 cent piece and a larger amount of dimes. (Once you get rid of the nickel, which is really worth too little to remain, the quarter becomes problematic for making change, so these changes have to happen simultaneously.)
3. Start producing 50 cent pieces again. They can use the drawer freed up by the demise of the quarter.
4. Phase out the $5 bill for a $5 coin.

The result is three coins of 10, 20, and 50 cents; three coins of $1, $2, and $5; and three bills of $10, $20, and $50; plus Benjamin Franklin.

The dime would remain the same; the 20 cent piece would be similar in look and size to the current nickel, but with a textured edge; the 50 cent piece would be the size and feel of the current quarter. The dollar coins would be similar sizes but with smooth edges and rimmed with copper or gold rings at the edges of each face. All six coins would be easily distinguished from each other but similar within each class.

Keep FDR on the dime, put George Washington on the $1 coin and Lincoln on the $5 coin to match the current denominations on bills, keep Benjamin Franklin. Change the people on the other coins to public figures with better historical reputations across a broader field of service and historical reach. I'd personally like to see coins for Frederick Douglass, Sandra Day O'Connor, and Jeanette Rankin to broaden the honored demographics a bit. They are all more worthy of the honor than Andrew Jackson and US Grant.

But then what am I supposed to give to strippers? Gotta keep the $1 bill.

Don't redesign the half dollar, stamp out new Kennedy half dollars. Or, put a new face on it, but use the same blank.

Vending machines and parking meters....if you introduce a new coin, it will jam the old hardware.

Clarifications and additions to my proposal:

JFK is not worthy of being on a coin, so the 50 cent piece should be reserved for someone better (like one of my suggestions).

Thomas Jefferson (on the current rarely used $2) and Alexander Hamilton ($10) have a better claim to stay, as they are founding fathers and Hamilton was a key figure in the nation's banking history. But I think both have personal stains on their reputation that are worthy of replacing them. The only unrecognized president I think deserves to be on a coin is Theodore Roosevelt, but I also think that recognizing more legislators and cabinet members and judges is more in keeping with our system of government and traditions.

By "gold" on the higher denomination coins I mean the color and not the metal.

Price adjustments in the end would simply drop the last digit and round to the nearest dime.

But there are no economists on any of your suggestions. How about Veblen on the $1000 bill?

Or how about Paul Krugman on a new two-penny coin ... since that's about how much his economic opinions are worth

If I ran for office, I would be the Candidate Against Change!

Candidate Against Small Change!

I would tell you what i think about this, but you wouldn't have the 2c for it

The US dollar and the Euro need (and have) 1-cent coin because they are also used as effective currency in regions that are poor enough that a cent does have value. They exist for a reason (the Euro cent has not even tradition behind it).

By contrast, the Canadian dollar and the Swedish krona (for example) are used only in their (wealthy) home countries. Their lowest denomination coins have gone away because there is no reason for them to continue to exist.

Any citation for that? I am not saying you are not right for some places, but my experience in Eastern Europe in the mid-90's was different. When inflation hit (briefly) 500% annual rate, and average monthly salary was hovering near $15, the economy was effectively running on US dollars and Deutsche marks, and yet coins were nowhere to be found, and some exchange bureaus explicitly stated right under the exchange rates they offered that they did not accept coins.

Euro cents are not used in some countries, e.g., Netherlands.

Penny debate in the US is very hot :) cailis

US pennies cost 1.79 cents to make? That sounds like a pretty good deal considering how long they last. In fact, why not just keep them and declare that a penny is now worth 5 cents? Then you can quitely get rid of them by letting banks and businesses trade in their pennies for nickles. You know, if it was still 2008 I would suggest the US simply declare the penny to be a dollar coin in order to give the country a bit of a stimulus. Yes, it might seem like a bit of an unfair windfall for people who horde pennies in jars, but I think those sorts of people could do with some extra happiness in their lives. Anyway, here in Australia we got rid of our one cent and two cent coins a long time ago. We don't miss them and you won't miss your penny either.

That's what the copper and zinc lobby says. But -- tell me -- would you take $3 for your $5 bill? -- cause I'm buying!

If the value of a penny as scrap metal is more than one cent then there's a problem. And an opportunity. Make the penny the world's first libertarian coin. Remove all government interference including its creation and protection. People will be free to do whatever they want with the pennny, including making their own and melting it down. It's value will be whatever you can convince people it's worth. This way the penny will be effectively be eliminated from normal use while striking a blow for FREEDOM!

If you throw pennies away, they just make more. Throw them in a jar and then every year or two convert them free at Coinstar to Starbucks cards. Then you altruistically reduce forward production.

(If we were a smarter nation we'd have already eliminated the penny and the paper dollar. And spare me the "coins are too heavy ... I have to go to the gym today" dissonance.)

What's the dissonance exactly? Lots of change coins are going to make you physically fit? Coins are a big pain in the ass, get rid of them. Make a better paper dollar if anything.

Of course daily activity, anything beyond sedentary living, makes us fit. And yes it is absurd to claim a 8.1 gram SBA coin is too heavy. On you way to the gym.

(Coins aren't the only time we conflict our laziness with our need for exercise of course. Witness the person waiting for the mechanized door on their SUV to lift, so they can get their gym bag.)

You are a clueless idiot. Have you ever exercised in your life or do you have any concept of what is entailed? No one wants to be bothered all day with petty annoyances that add up to a miniscule or more likely zero change in fitness level. It makes way more sense to focus your fitness in one targeted time period for maximum effectiveness with minimum overall discomfort.

No one even thinks to thank Tyler for his deflationary impact.

It's time for the U.S. to reform its currency by issuing New Dollars, such that each New Dollar would be worth ten Old Dollars.

That way, New Pennies would at least be worth a dime (in old currency), and dimes and nickles would be worth enough to buy stuff from vending machines.

(Yes, makers of vending machines, slot machines, and tollway coin buckets would have to replace their coin acceptors. And perhaps some old parking meters? But other than these specialized uses, how often is it necessary to have coins in one's pocket? And, how long before even these uses become obsolete, as the cost of electronic funds transfer decreases?)

I think it would be easier just to get gradually get rid of small denominaton coins as they become useless and then eventually get rid of cents altogether. Dealing with currencies such as the yen that have no cents is no more intrinsically difficult than currencies that do. That puts off the more difficult task of redominating into the future where perhaps money will all be electronic anyway.

3 Coins, 3 Bills. That's all that's necessary

Coin | .05
Coin | .05 * 5 = .25
Coin | .25 * 4 = 1.00
Bill | 1.00 * 5 = 5.00
Bill | 5.00 * 4 = 20.00
Bill | 20.00*5 = 100.00

That's perfect spacing of 4/5 at each interval. Anything else is redundant (dimes, .50 pieces, $1 Bill, $2 Bill, $10 Bill, $50 Bill) or immaterial (pennies)

That's REAL CHANGE I CAN BELIEVE IN!

But why would you throw them away? Drill a hole through one and you've got a free washer for when next you, uh, make or repair stuff.

A hole and a string gets you a free load of wash.

Interesting that so many cmmenters are in favor of fiat scraps of debt-based paper as opposed to debt-based fiat metal discs and even more opposed to genuine chunks of precious metals.

The world's smallest coin - the gold penny.

Why the hate for the $1 bill? Sure they don't last as long but it is much easier to not deal with coins. Bills can be stacked and placed in a wallet or clip, coins are a pain to keep track of. I use a card for almost all purchases in part because I hate coins.

"Why the hate for the $1 bill?"

Trying to get vending machines to accept it, obviously.

I think that I prefer our Australian one and two dollar coins to the notes we used to have, but I can't say that I have strong feelings either way. And while I do find the continued existence of the penny and the fact that there are four quarters to a dollar instead of five 20 cent pieces odd, I do want to congratulate the United States for having coins of a reasonably sensible size. Here in Australia we used to have massive imperial copper coins that were a hold over from when the amount of copper reflected the value of the coin. When we switched to decimal currency we made our new coins much smaller, but, and this is the point, not nearly small enough. As a result, what would be a small handful of change in the United States is enough to pull your pants down Down Under.

In Switzerland, we have no pennies. No one misses them. In fact, it is increasingly common for firms to price things so that they don't need to bother with nickels (5 rappen pieces) either. One thing that makes this work more easily is the custom to quote prices that include the sales tax. You don't get the problem of calculating 6% of $5.95, creating odd numbers. Generally, the receipt reports the sales tax, so there is no loss of transparency.

I've been throwing pennies away for 3 or 4 years now. I agree, strangely enjoyable.

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