The folks over at The Corner are debating the merits of phasing out the penny (there are several posts--just scroll down or control-F for "penn").

Most seem to favor keeping it, and make all kinds of arguments for it, few of which I find compelling, and most of which are, in my humble opinion, at base a simple conservative resistance to change, them being conservatives and all. One last holdout was Peter Robinson, who was swayed to the pro-penny side by the following flawed argument:

A penny is to money as entropy is to thermodynamics. When you spend money, you get some useful work (the stuff you bought), some useful left over energy (large change), and some energy lost to entropy (pennies). Sure, if you get enough pennies together, you can make most of them useful, but some will always be lost to the pavement, cracks between the cushions, and not having quite enough to fill a roll of pennies.

Just as you can't get rid of entropy in thermodynamics, I don't think you'll ever be able to get rid of fiscal entropy; the most you can do is turn nickels into the new unit of entropy.

Sorry, I don't find the "entropy" argument compelling. If it were true, then if a hundred to the dollar is good, a thousand to the dollar would be better. Why stop there?

Face it, any choice of the smallest denomination of currency is going to be arbitrary. While it would be nice to see some deflation a la Ramesh, it's a dangerous path to get there, and at the current valuation of the dollar, pennies really are useless.

I'd say that a reasonable criterion for when a coin has too small a value is when it's not possible to purchase anything with a single one of it. A penny may still buy thoughts, but there's nothing else that it can purchase in today's society, since the demise of the penny gumball machine.

Away with it.

The one argument that actualy makes some sense is to get rid of both the penny and the nickle and go with the dime as the smallest coin. In effect, eliminate entirely the idea of pricing to the hundredth of a dollar, and only go to the tenth. It would also be equivalent to remonetizing and set the value of a New Dollar equal to 10 old dollars, and in effect divide all prices by 10. But in any case, what's the point of keeping around a "half-dime" in a decimal system, anyhow? (The quarter you say?-- Replace the it with a "double-dime" and the half-dollar.)

(Remonitizing is what happens during a hyperinflation, like in 1969 or so, when Brazil lopped off three zeros from the cruziero, and there were lots of bills in circulation where the new value was rubber stamped stamped onto the old bills.)

Never thought of it that way. I like that logic, just get rid of them.

Of course keep the nickels and bring back the $.05 beers.

I can see one immediate reason to keep the penny - the existance of differential state sales tax in this country. It's one thing I found bizarre coming here - price tags dont have sales tax built in. Eliminating the penny would do funny things to taxes assessed on items under $20.

Back in New Zealand we got rid of the 1¢ and 2¢ coins without the world ending - but then we also converted the $1 and $2 notes to coins - increasing the average weight of change. As we are ruthless with our consumption tax (no exemptions - it is even assessed on charitable donations), and we are probably closer to a cashless society than any outher economy, there was no problem with price 'resolution'.

Most vending machines won't take pennies. It's simply not economical to deal with them. The same is probably true in, say, retail and banking but that fact is more easily masked by the difficulty of toting up the costs of accepting pennies and handing out pennies in change.

On the other hand, if you eliminate cent-level granularity in financial transactions too, that might not be such a good idea.

My criteria for whether a coin is worth keeping. If you drop it on the ground, is it worth picking up?

The penny is the neutrino of the capitalist universe. It is generated by the sales tax interaction. Do away with the penny, and put Lincoln's face on a new, properly sized dollar coin.

The penny is a testament to how special interests can lobby against needed economic reform.

Imagine how many people are employed to count and handle pennies and for that matter the other useless bits of metal and paper that we needlessly attach significance to, and lose time manipulating, when far more efficient methods of monetary transfer exist.

If all the fast food resturants had a machine I could swipe my card and press a few buttons to order, how much cheaper could they be? If we returned all the people whose job it is to handle these useless bits of metal and paper into more economically productive jobs, I wonder how much it would boost the US economy?

Of course we're going to eliminate the penny,
This will happen soon after we complete this country's conversion to metric.

Australia dropped its pennies back in the Eighties - we don't miss them.

We kept the nickels (we used to call them 'zaks' - now they're just plain old '5 cents').

And yes, we did it AFTER Australia was fully converted to metric. But somehow, tall guys are still usually 'over 6 feet high', we wonder 'how many miles per gallon' will that SUV get ? and we pick up 'a coupla pounds of potatoes' at the market.

Raoul's comment reminds me of a story my wife tells about when she was a kid. She's Brazilian (Carioca, no less), and when she was a kid inflation was so bad that the newspaper printed a table every week showing the value of money for the next week on a day-by-day basis. Goods were priced in 'points' and in order to figure out the price in cruzieros you'd look up the appropriate points-cruziero conversion for that date in the table. To this day, when she talks about someone exagerating things she uses the phrase "apply the table" to indicate that there is a correction factor needed to get to the truth.

You can read my blog for a penny.

I'd prefer to actually do the revaluation, making the penny useful again by increasing its value (and those of all other currency). My suggested amount is 10:1, because that would take prices and wages back to the Sixties, and that's when I grew up and learned the prices of things. Gas for two bits a gallon, cars cost $2000, a loaf of bread ten to twenty cents depending on type; it's almost exact.

We can't do that because our currency is the "reserve currency" of the world, and having to call back all those $20 bills in vaults around the planet would not only be expensive, it would lose for a lot of people.

Of course if the Europeans win, and the Euro becomes the reserve (and oil price) currency, that reason will go away. My first thought is to let them take it and welcome, on the "may you get what you wish for" principle, but of course the matter is complex.

But the real reason we won't do it is that it would expose an agonizing fact: everything is cheaper nowadays relative to purchasing power except one thing. That thing is Government. We pay less for cars and more for politicians than we did then, and Government doesn't want anyone to notice that.

Regards,
Ric

Eliminating both the penny and the nickel would effectively make all sales tax rates no less than 10%. I would be inclined to vote no on that idea.

Keep the nickel and push my sales tax back to five cents, and I could support that -- except it wouldn't last and we'd be up to 10%. Still no.

Of course, if I ran a gas station I'd clip that extra nine-tenths of a cent off my per-gallon price...

Eliminating both the penny and the nickel would effectively make all sales tax rates no less than 10%.

??

No more than having nothing smaller than a penny makes purchases of a ten-cent items have a ten percent sales tax. It would just move the threshold for that minimum from a dime to a buck. You concern would only be valid for very small purchases (a dollar or two).

If the sales tax is six percent, and I make a hundred dollar purchase, my tax will be six dollars, and it's not affected at all by the presence or absence of pennies and nickels.

Somebody in a fast food joint actually gave me a two dollar bill the other day. It was dated 2003. I gave it back to him. I did not even know that they make two dollar bills anymore.

I think we should switch to dubloons.

Down here there is a strip club that hands out $2 bills to give to the girls. You see quite a few of them in circulation--and you know where they came from, heh.

No more than having nothing smaller than a penny makes purchases of a ten-cent items have a ten percent sales tax.

Of course if the actual sales tax rate is less than 10% the effective tax rate on a ten-cent item is zero.

I just don't trust politicians not to decide, "Hey, since we don't have pennies and nickels anymore..."

Every time it rains,
It rains nickels from heaven
Don’t you know each cloud contains
Nickels from heaven

You’ll find your fortune’s falling
All over the town
Be sure that your umbrella is upside down

Trade them for a package of sunshine and flowers
If you want the things you love, you must have showers
So when you hear it thunder don’t run under a tree
There’ll be nickels from heaven for you and me