Most Americans of a certain age can remember the penny candy counter at their favorite mom-and-pop variety store. Both penny candy and traditional mom-and-pop stores are rarities today, though you can still find Tootsie Rolls, Mary Janes, jelly beans, red hots, chewable wax lips and other old-school favorites at specialty shops around the country.
What you may not be able to find in the future is pennies.
President Trump has ordered the U.S. Mint to stop producing them. His announcement stressed the fact that taxpayers lose more than two cents every time a new penny is minted. That adds up: In fiscal year 2024 alone, the Mint reported losing $85.3 million on the nearly 3.2 billion pennies it produced.
The decision is long overdue, but it wasn’t Trump who killed the penny — it was inflation.
The real reason it’s time to pitch the penny is that its value has (by definition) stayed at one cent, while the price of everything else (including zinc, which makes up 97.5 percent of the coin) has gone up — largely due to the Federal Reserve’s inflationary policies since the U.S. adopted fiat money. This officially occurred in August 1971, but a case also can be made to backdate it to 1933, when the U.S. left the gold standard.
In 1971 the penny still had some value; it could buy a gumball at the grocery store. In 1971, the Consumer Price Index stood at 40.7; in January of this year, it topped 319, meaning prices are almost eight times higher, even as the penny’s value is about 87 percent lower. These increases are substantially the Fed’s doing.
As the late economist Milton Friedman reminded us, inflation occurs when the money supply grows faster than the value of the goods and services we produce. If the Fed hadn’t increased the money supply more rapidly than the economy has grown, the penny would still be valuable and the cost of producing a penny would be about half-a-cent, rather than 3.7 cents.
It’s no wonder that many people no longer stoop over to pick up a penny and won’t take the time to bring their jar of pennies to the Coinstar machine.
Some $240 billion in pennies currently are in circulation, averaging about 700 per person, or $7 worth. The Bureau of Labor Statistics reported average earnings in January at $35.87 per hour.
That’s 3,587 pennies per hour — and with 3,600 seconds in an hour (60 seconds per minute, 60 minutes per hour), that means Americans, on average, earn almost exactly one penny per second.
Median hourly pay (the point at which half of all workers earn more, and half earn less) is somewhat lower: around $20 per hour. That’s slightly more than a penny earned every two seconds. So even if pennies could be created out of thin air and taxpayers didn’t have to foot the bill for their production, our time is more valuable.
Won’t consumers get rooked when the penny disappears and cash prices are rounded to the nearest nickel? So many prices end with nines after all — $1.99, $2.59 and the like.
That’s unlikely, because we typically purchase multiple items, and all but five states (Alaska, Delaware, Montana, New Hampshire and Oregon) levy sales taxes, so the final digits of our cash register receipts are essentially random. At least, that’s what I found when I examined data from about 186,000 convenience store transactions.
What happens next? Until now, when consumers hoarded pennies, tossing them into jars rather than returning them to retailers, the retailers simply got more from their banks. The banks then requested more from the Treasury and the U.S. Mint would make more.
Moving forward, when stores run out of pennies after the Mint gets out of the penny business, they can ask their customers to bring them in. Maybe they will.
Eventually, however, there won’t be enough pennies in circulation and stores will tell customers that their total will be rounded up, or down, to the nearest nickel when paying with cash.
That’s what happened in Australia, Canada, the Netherlands and other countries that eliminated their one-cent coins (or the equivalent) — everyone adjusted to the change fairly quickly.
This won’t happen overnight. It’s likely to take years. In the meantime, as the Fed continues to devalue our money, people will realize that pennies are worth less. When they become fully worthless, they may live on in our memories, but not in our day-to-day commerce.
Robert Whaples is a professor of economics at Wake Forest University in North Carolina and a senior fellow at the Independent Institute, Oakland, Calif.
