Economics

The U.S. Penny Costs More Than 1 Cent to Produce

The U.S. penny is worth one cent, but it costs the U.S. Mint about 1.5 cents to make. And think about it — how often do you really use them? Is it time to get rid of this coin once and for all?

The Penny's Days May Be Numbered

The United States started producing pennies in 1787. Since their creation, they have always been worth one cent, but the composition of the coin has changed. Pennies were originally all copper, but as the value of copper climbed, the value of the penny sank, leading the U.S. Mint to alter the composition to what it is today: 2.5 percent copper and 97.5 percent zinc. But even this new formulation hasn't fixed that value imbalance. In 2016, the penny still cost 1.5 cents to make. (The nickel, by the way, costs 8 cents to make.)

But even if it didn't cost the country more than one cent to create their one-cent pieces, there are other reasons to abandon the penny. Consider the fact that in 1915, the penny was worth about 25 cents in today's money. Since the penny was the smallest form of currency, they didn't have today's buying equivalent of a penny (or a nickel, or a dime), and they got along just fine. So why do we need it today? There's also the issue of the time it takes to fish for pennies and the fact that so many are left in dishes at the cash register and jars on the dresser. Harvard University economics professor Greg Mankiw says, "The purpose of the monetary system is to facilitate exchange. The penny no longer serves that purpose. When people start leaving a monetary unit at the cash register for the next customer, the unit is too small to be useful."

Reasons to Keep the Penny

In the din of people crying to abandon our smallest form of currency, there are a view voices praying to keep it. One is professor Brian Domitrovic, who wrote a piece for Forbes arguing his case. In essence, he says that coins were first adopted based on the value of the metal they were made of. If coins were made of something that was worth less than they were traded for, a government could overproduce money and tank the economy (Are things starting to sound familiar?). But with the rise of legal tender laws and the Federal Reserve, the U.S. government can now make its citizens use the money it mints, and control how much of it flows out into the economy at any time. Domitrovic says this led to the Great Recession, "the era of the most gargantuan episode of state-sponsored monetary creation in the history of the world.

What does this have to do with the penny, exactly? "This money, this petty change, actually costs something to make," Domitrovic concludes. "Which would be precisely why we should insist that the United States keep making it. It can remind the country of how properly to conduct monetary policy."

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To learn more about useless U.S. currency, check out "2 Dollar Bills: America's Forgotten Currency" by John Bennardo. We handpick reading recommendations we think you may like. If you choose to make a purchase, Curiosity will get a share of the sale.

Written by Ashley Hamer July 28, 2015

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