Breaking News! After two hundred and thirty-two years the United States Mint has announced that it will no longer mint new pennies. The last ones were produced on November 12, 2025. In recent years annual production has been slightly over three billion. Estimates of the total number of pennies currently in circulation range from one hundred billion to three hundred billion. That is three hundred to nine hundred per person in the United States – I suspect most of coins “in circulation” are stashed in coffee cans or shoe boxes.
The rationale behind terminating minting pennies is two-fold; the expense (four cents) of minting one penny and the fact that the purchasing power of the penny has declined significantly. The days of penny whistles and penny candy are far behind us. According to the Federal Government’s Consumer Price Index (CPI) it would take fourteen cents today to buy what one could buy for a penny in the 1940s, and I think that understates the effect of inflation. I earned three dollars for eight hours of work as a soda jerk in a drugstore in Bridgeville in 1948; at the same time my (future) wife was earning the same wages doing similar work in Grove City. Teenagers today easily earn twelve dollars an hour for such menial work, a deflator more than twice that predicted by the CPI. At any rate, a penny today is essentially worthless.
If the penny goes, can the nickel be far behind? It turns out that minting a nickel costs nearly fifteen cents, and its purchasing power has decayed equally. At this time, it is assumed that eliminating the penny will result in rounding up (or down) to the nearest nickel. One wonders if we shouldn’t immediately take the next step, eliminate the nickel, and round off prices to the nearest dime. Or does it matter? It is estimated that only about ten percent of all transactions today are made in cash, and the transition to electronic transactions continues to accelerate. All of which leads us back to a question that has puzzled us for years – what is money, anyhow?
We know that primitive societies functioned effectively by a barter system, with participants trading goods and services for other goods and services. We amateur local historians are familiar with the situation in Western Pennsylvania at the time of the Whiskey Rebellion. The famer would deliver a load of corn to the storekeeper and receive in return a promissory note quantifying the storekeeper’s debt to the farmer. The hardware store owner would purchase corn (and other groceries) from the storekeeper, paying for them with a similar promissory note. He would then sell the farmer a set of tools and receive a promissory note in payment. Eventually the promissory notes would even out and be resolved, a classic example of a barter system that worked well without any formal currency. We have a scrapbook filled with just such promissory notes from my Smith ancestors dating back over two hundred years.
One of the core issues that precipitated the Whiskey Rebellion was the requirement that individual distillers be taxed and that the taxes be paid in Federal currency, very little of which was available in Western Pennsylvania. The only way a distiller could acquire currency was to transport his product to Philadelphia and sell it there for hard cash, most of which he promptly spent on hard goods that he transported back home. The only necessity for currency in this area was to pay Secretary of the Treasury Alexander Hamilton’s accursed Whiskey Tax. Ironically, Hamilton is the same gentleman who nearly precipitated a secession movement in 1790 with his advocacy of “assumption” (by the Federal Government) of the debts of the individual states for funding the Revolution as part of a general program to establish credit for the government, anticipating the continuing need to borrow money to fund extraordinary expenditures.
Assumption was just one plank in the Federalists’ platform aimed at consolidating power in the Federal government, at the expense of the individual states. Strongly opposed by the Southern states, the Funding Act of 1790 which included assumption was finally passed only after the northern states agreed to locating the new nation’s capital in a brand-new city in the South, named for our first president. Brokered by Secretary of State Thomas Jefferson in the “Compromise of 1790”, Hamilton and powerful Virginia Congressman James Madison agreed on a solution that both parties found amenable. This momentous occasion has been immortalized in the contemporary musical Hamilton when Aaron Burr sings The Room Where It Happens.
During the 1790s, interest on the Treasury securities issued to fund assumption peaked at forty percent of the Federal budget (this year debt service is about eight percent of the budget). The total debt was about seventy-five million dollars, of which about twelve million was owed to European investors. Hamilton and his successor as Secretary of the Treasury Albert Gallatin prioritized servicing the foreign debts and establishing our nation’s credit. In the years to come this made it possible to fund the Louisiana Purchase in 1803 and the execution of the War of 1812.Even then it was necessary to establish a positive credit rating to facilitate borrowing.
The lesson we can learn from this is that financial transactions are really nothing more than promises and occur only when there is complete trust in both parties. Currency (or checks or credit cards) are merely the medium of an intermediary (in this case the Federal Government) party in which both parties have confidence. Small wonder that even the slightest concern about the stability of any government can initiate instability in the financial world.
Nonetheless, I still believe in the old advice, “See a penny, pick it up, all day long you’ll have good luck”. Sooner or later that has to come true.