David R. Henderson  

End the Penny

Free-Market Education Reform: ... You Don't Have to Raise the Av...

Here's an entertaining criticism of the penny. In 2006, I supervised a thesis in which my student made the case for eliminating the penny. The author, Stephanie King, was at the time a Major in the U.S. Marine Corps. A quote from the thesis:

For more than twenty years, the Department of Defense (DOD) has eliminated the use of pennies in its facilities at its overseas bases. Since these bases are located in areas such as Japan and Germany, remote from normal circulation of U.S. money, the transportation of currency proved to be costly. These "jingle runs," as they are referred to in the Pacific region, consist of the transportation of currency on Air Force planes operated by the Air Mobility Command. The coordination of the currency transfer is operated by each of the major commands around the world. For the Pacific region, the United States Pacific Forces Command (PACOM) performs these "jingle runs." A careful analysis conducted by students at the Naval Postgraduate School determined that the cost of these runs, including transportation costs, handling costs, and transfer costs, was about $130,000 for four trips conducted annually. And these costs do not include the transportation of pennies because the DOD had already stopped using them at the time of the NPS study.

The DOD decided that it was too expensive to continue to transport pennies to these locations and instead implemented different approaches for dealing with cash transactions that ended in cents. Its approach for dealing with this is two-fold. The first approach is used at more permanent overseas bases such as those located in Germany and Italy. Here, it implemented the rounding system on cash transactions. The second approach pertains to Morale, Welfare, and Recreation activities in war zones overseas. In hostile environments, military facilities that operate in cash transactions use cardboard coins in the denominations of 5, 10, and 25 cents.

HT to Jeff Hummel and Tyler Cowen.

Comments and Sharing


COMMENTS (9 to date)
Brian Schwartz writes:

It does cost more than one cent to manufacture a penny.

More people should read Rothbard's What Has Government Done to Our Money? and support real commodity-based currency.

Tracy W writes:

NZ eliminated the one and two cent coins years and years ago, and more recently the five cent one. It's great, it amazes me that the UK and the USA haven't already done so.

Richard A. writes:

The penny back in the mid 30s was worth maybe about 15 cents in terms of today's dollar (depending on what inflation index used). I think we should get rid of the nickel too.

david (not henderson) writes:



David C writes:

I wonder how difficult it would be to eliminate all cash. The biggest problem, I think, would be small transactions like vending machines and parking meters. What if quarters and dollar coins were the only units of currency still remaining?

Bill Wilkinson writes:

I always thought of a penny found in a parking lot or on the sidewalk as not worth the cost of the illness you might contract from the germs on it.
However even despite the smaller share cash has in all US dollar transactions, to remove the penny as a a unit of currency would be to encourage some inflation, as price increases would have to be given in higher increments, $0.10 as opposed to just $0.07 for example.
Would the cost of this small increase in cash prices be worth reducing the cost of minting money and increasing the seigniorage to the Treasury?

Chris Koresko writes:

Wait, they were shipping coins by air? Would it not have made much more sense to ship them by ship and rail? That ought to be much cheaper, and it's not as if they're going to spoil en route. What am I missing here?

When I saw the title I assumed the argument would be that the value of peoples' time to handle and count pennies outweighs any possible economic benefit. Back-of-the-envelope: Two people per transaction, three extra seconds to handle the pennies, that's six man-seconds. Say a man-hour is worth $40. Then it costs about 7 cents in labor to handle the pennies. But normally they're not worth that much; they should be worth less than a nickel, right? So even if my numbers are pessimistic, it seems really hard to justify the time.

@Bill Wilkinson: You seem to be saying something interesting here but I'm struggling to understand it. I would have thought that eliminating pennies would just force prices for cash-bought goods to change in five-cent increments, without particularly biasing prices in either direction, except for things that are now sold for less than a nickel which would have their prices pushed up. Am I wrong?

Kristine writes:

Is this really a serious move? Transportation of penny might be too expensive but how about the comfort in using it? I don't now but maybe I have to be enlightened some more on the purpose of this. Actually, I am confused a bit. Maybe you can post a more brief discussion regarding the issue. I am sorry but I am just an ordinary citizen who cannot understand economy issues in an instant.

George X writes:

David C wrote: The biggest problem, I think, would be small transactions like vending machines and parking meters.

Right now in DC, they have centralized parking kiosks which take credit cards (and bills). But what we should really do is accept cell phone payment, as they do in soda machines in Finland. Not everyone has a cell phone, you say? Well, not everyone has a car, either.

Also in DC, we have a subway ad campaign urging citizens to use dollar coins, to save the government money. Here's an idea: STOP MAKING DOLLAR BILLS. That would get me to use dollar coins quite effectively. Now that the senator from Crane Paper is dead, isn't it time to finally quit printing millions of portraits of George Washington?

Having dollar bills now is roughly equivalent to having twenty-cent bills in 1970. And saying we need pennies now is like saying we needed fifth-cent pieces in 1970. Not having pennies is not the same as not having cents: your electronic bills and payments will work just fine with amounts of $29.79 (and $0.015 apiece, for that matter).

And here we come to what I suspect is the main reason we haven't eliminated dollar bills and pennies: it's very, very hard to point out the stupidity of keeping them without sounding like a ranting loon.

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