It looks like the pundits have run wild with the malarky that gins up crowds for an issue that should not be an issue. This one was started by John Green, someone with the credibility of a camera who posts videos for something he and his partner calls Vlog Brothers. Apparently, the vlog (video blog) is about whatever comes to their minds whether it is right or not.
In Green’s latest screed posted on YouTube he ruminates about how the “penny” is worthless and the U.S. Mint should not be producing them. In the comments to the video, he claims that he read two articles, one from The Washington Post and another from Consumer Affairs, about the alleged opportunity costs of the coin. In fact, The Washington Post article is an opinion piece and has limited value in the argument. What Green did not say is that both articles are over four years old. Apparently, he could not find anything more recent or factual.
I found the video on the The New York Times block of Stephen J. Dubner, a co-author of the Freakonomics books and journalist who like some of his other The New York Times brethren has issues with facts (e.g., Duke lacrosse case).
Starting with the grossly obvious: The United States Mint does not strike “pennies.” The coin is one cent and not a penny. The penny is the lowest denomination of the current British monetary system. Back when Alexander Hamilton devised the U.S. monetary system, the lowest British denomination was the Farthing, ¼ penny. Rather, Hamilton called the coins “cents” to distinguish the United States coins from the British coins.
But the name of the coin is a basic issue. The real measure of the alleged journalist’s muster is if he could look beyond the salacious drivel to discover the truth that may actually cause real thought and consideration from the public. If Green and Dubner would do their homework they will know that:
“Wait,” you might interrupt. “Aren’t these government agencies that are funded by congress?”
Yes, both the U.S. Mint and the Bureau of Engraving and Printing are bureaus under the Department of the Treasury whose budgets are approved by congress. However, the money that congress allocates to these bureaus are NOT taken from the general fund.
Both the U.S. Mint and the BEP are profit making bureaus. After manufacturing the money, it is sold at face value to the Federal Reserve for distribution to member banks and then to the public. The difference between the face value of the money and the cost to manufacture the money is the profit—called seigniorage. Even though the one cent and five cent coins cost more to manufacture than their face value, the U.S. Mint continues to generate profit from the sale of all coins sold to the Federal Reserve in addition to the sales of bullion and collectible coins.
According to the 2009 U.S. Mint Annual Report (covering Fiscal Year 2009: October 2008–September 2009), they earned $98.1 million in seigniorage. That is a profit of $98.1 million in a down economy!
When the U.S. Mint is paid by the Federal Reserve for the coins, a collector purchases collectibles directly from the U.S. Mint, or a bullion dealer buys bullion coins, the seigniorage is deposited into a special account called the United States Mint Public Enterprise Fund (PEF) as required by law (see 31 U.S.C. §5136). As sales are deposited in the PEF, the law requires that the U.S. Mint use the money in the PEF for budgetary reasons like to manufacture coins, maintain facilities, pay employees, etc. No tax money is deposited in the Public Enterprise Fund and the PEF is managed like all general accounts by the Treasury Department. In fact, excess profit is required to be deposited in the Treasury general fund.
There is a similar fund for the Bureau of Engraving and Printing (see 31 U.S.C. §5142).
If the money that the U.S. Mint uses for all its operations is withdrawn from the PEF and if the PEF does not contain any tax receipts, then how does it hurt taxpayers if the U.S. Mint continues to manufacture one and five cent coins?
More philosophically, it is “[the] primary mission of the United States Mint is to produce an adequate volume of circulating coinage for the nation to conduct its trade and commerce.” This is done by striking coins that are ordered by the Federal Reserve System for placing into commerce. If the Federal Reserve only orders coins they need to sell to member banks, then why is does Federal Reserve Currency and Coin Services order so many one cent coins? If they are useless and cannot buy much, why do they keep ordering more cents?
It is unfortunate that a journalist chose to support his fact deprived argument using an editorially questionable YouTube video.