17 Nov 2007

Coins of the Realm

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P.J. O’Rourke discusses, in the Weekly Standard, how it costs the US Government almost two cents to produce a penny.

The problem is the cost of zinc, which is what a “copper” is actually made of. For the past 25 years a penny-weight of copper has been worth considerably more than a penny. And we wouldn’t want our money to have any actual monetary value, would we? That would violate all of the economic thinking that has been done since the days of John Maynard Keynes. And it would give the Federal Reserve Bank governors nothing to do except sit around saying “oops” and “whoopee” every time the economy went down or up. Therefore the U.S. Mint began making pennies out of less expensive zinc with a thin plating of copper for the sake of tradition and to keep Lincoln from looking like he’d been stamped out of a galvanized hog trough. But then a rising commodities market drove up zinc prices. (Maybe China needs a lot of zinc for, oh, I don’t know, stabilizing the lead paint of Barbie dolls so that our girls don’t start beating their girls on math tests, or something.)…

Libertarians are only human. When we’re tired and stressed, we occasionally experience delusional hallucinations involving government–the kind Hillary Clinton should be medicated for at all times. But then comes the story about the penny costing two pennies, and we experience a sudden miraculous Hayekian, Misesean, Rose and Milton Friedmaniacal psychiatric cure. All my sane disgust at and mentally balanced distrust of the political process returned like–need I say it?–the proverbial bad penny.

Meanwhile in Indiana and Idaho, as the Washington Post reports,the federal government was busy eliminating the competition.

Federal agents on Thursday raided the Evansville, Ind., headquarters of the National Organization for the Repeal of the Federal Reserve Act and Internal Revenue Code (Norfed), an organization of “sound money” advocates that for the past decade has been selling a private currency it calls “Liberty Dollars.” The company says it has put into circulation more than $20 million in Liberty Dollars, coins and paper certificates it contends are backed by silver and gold stored in Idaho, are far more reliable than a U.S. dollar and are accepted for use by a nationwide underground economy.

Norfed officials said yesterday that the six-hour raid occurred just as its six employees were mailing out the first batch of 60,000 “Ron Paul Dollars,” copper coins sold for $1 to honor the candidate, who is a longtime advocate of abolishing the Federal Reserve. The group says it has shipped out about 10,000 silver Ron Paul Dollars that sold for $20 and about 3,500 of the copper $1 coins. But it said the agents seized more than 50,000 of the copper coins — more than two tons’ worth — plus smaller amounts of the silver coins and gold and platinum Ron Paul Dollars, which sell for $1,000 and $2,000.

“They took everything, all of the computers, everything but the desks and chairs,” the company’s founder and head, Bernard von NotHaus, said in a telephone interview from his home in Miami. “The federal government really is afraid.”…

“People are pretty upset about this,” said Jim Forsythe, head of the Paul Meetup group in New Hampshire, who said he recently ordered 150 of the copper coins. “The dollar is going down the tubes, and this is something that can protect the value of their money, and the Federal Reserve is threatened by that. It’ll definitely fire people up.”

Von NotHaus said agents also raided Sunshine Minting in Coeur D’Alene, Idaho, a company that makes the organization’s coins. He said agents seized huge pallets of silver and gold, worth more than $1 million, that the organization says back the Liberty Dollars.

One Feedback on "Coins of the Realm"

Dominique R. Poirier

I once wrote a thesis on the history of money counterfeiting, which explained at some point how currencies are made. It’s an enthralling subject full of surprising facts and anecdotes, indeed.

For long, the weight of metal to make a coin was worth its face value; until Louis XI, King of France (1423-1483) got the idea to blend with base the gold of the coins the French kingdom issued so as to swell the State’s coffers. As a result, the total amount of French gold (the guarantee) was inferior to what the totality of French coins issued said, of course. Monetary inflation made its first appearance in history.

But the trick, though it made a bad reputation of honesty and reliability for the French Crown at that time, became common practice in France and elsewhere, eventually; until inexpensive metal was universally used to strike coins. Thus it became a rule to spend much less to strike a coin than what its face value said. The practice reached its maturity when the use of paper banknotes was definitively adopted by many countries—In the case of America, for the record, it was the Continental Currency produced by the Continental Congress during the American Revolution.

But, if the use of gold to strike coins became rarer and rarer until it disappeared in the middle of the XIXth century, silver was commonly used in certain countries until the late XXth century.
The recent disappearance of silver coins owed to popular speculation on this other metal; a speculative phenomenon which encouraged people to hoard silver coins rather than use it as common currencies when the actual value of it weight became higher than what said the face value.

Today, nickel is the most common metal in use to strike coins worldwide because it is too hard to counterfeited nickel made coins with rudimentary means in the secrecy of the common basement. But, depending the face value of a given coin, it still happens then and now that its manufacturing cost and weight of metal cost more than what says its face value. Though not precious nickel is somehow an expensive metal; to which we must add a relatively high manufacturing cost owing to its hardness, as I said. This problem applies to copper and even to zinc when used as metal to strike a coin of small value, though these other metals are softer than nickel. By the way, did you know that The United States five-cent coin, commonly misnamed a “nickel,” only contains 1.25 g of nickel (25%) for 3.75 g of copper (75%)?

It just happened that the price of copper has risen rapidly, increasing 500% from a 60-year low in 1999, largely due to increased demand; and that the price of zinc has risen from about 0.40 $US/lb in November 2002 to more than 1.10 $US/lb in November 2007.

So, what about our beloved penny?

Pennies made before 1982 were mostly copper, and weighed about 3.1 grams. Since then, penny weighs 2.5 grams and is mostly zinc. But since copper is trading at 6.72 $US/kg, as of today, the actual value of an old penny made before 1982 is 2 pennies, whereas pennies made after 1982 is 0.6 penny since zinc is trading as 2.42 $US/kg.

But the US 5 pennies “nickel” knows similar concerns.

As of April 5, 2007 nickel, the metal, was trading at 52.30 $US/kg. So, since the US nickel coin contains 1.25 g of nickel, which at this new price is worth 6.5 cents, along with 3.75 g of copper worth about 3 cents, then it makes the metal value over 9 cents; a 36% premium over its face value!

From then on some speculators might consider that all they have to do is to keep storing pennies in jars and to check them all one by one for the tiny date stamped on the head at the right side of Abraham Lincoln. Also, they might stop using “nickels” as currency and melt it instead.

It’s quite a tedious job, but it’s a job; some might say.

However, in an attempt to avoid losing large quantities of circulating nickels to melting, the United States Mint introduced new interim rules on December 14, 2006 criminalizing the melting and export of pennies and nickels. Violators of these rules can be punished with a fine of up to $10,000, five years imprisonment, or both.

Take a look at it and be warned:

Yes, perhaps did I waste a bit much time for a penny.


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