Paulson and Understanding Common Cents

Mar 6, 2008 | cents, ethics, history, policy

History tells us that the first coinage legislation was devised primarily by Secretary of the Treasury Alexander Hamilton with Secretary of State Thomas Jefferson. These fathers of the United States understood that the new, struggling nation needed its own monetary system that had to be accepted by the public. The eventual law became the foundation of our monetary system.

When Hamilton decided a decimal coinage system was best, he was looking at how the people were using the Spanish Milled Dollar (8 reales) and cutting it up for minor coinage. The pieces were called “bits.” He also saw the continued circulation of British copper coins. The highest denomination circulated in the colonies was a sixpence since the king used the lower coinage in an attempt to control the populace. These coins were used a decimal fraction of the Milled Dollar. It was a natural progression.

Jefferson and Hamilton proposed new United States coins that would be used along side their British and Spanish counterparts until the country could produce enough coinage to drive the foreign coins out of circulation. Jefferson proposed that the new United States coins be similar in size to the coins in circulation. Thus the bill passed by the first congress included a half-cent as the same size of the half-pence, the one cent as the same size of the one penny, the half-disme was the same size as the threepence, and so on.

Hamilton pursued the minting of the half-cent because he felt that if the cent was the lowest denomination, the prices for common commodities would have to be raised. About the half-cent Hamilton said that to “enable the porrer classes to procure necessaries cheap, is to enable them, with more comfort to themselves, to labor for less; the advantages of which need no comment.” The half-cent was also necessary to replace the half-penny and provide change for the bit, which is one-eighth of a Milled Dollar.

The half-cent survived until the passage of the Coinage Act of 1857 which eliminated the half-cent, approved the minting of the small cent, and demonetize foreign coins circulating in the United States. Since the half-cent was not a popular coin, the economy adjusted and found that half-cent pricing was voluntarily eliminated Also, without the bit being legal tender, there was no longer a need to make half-cent change. Within a short time, a few years by some accounts, both the half-cent and large cent were no longer being circulated.

In the United States, we hold our founding fathers in reverence because of how their work has survived. While these men were not perfect, their wisdom and foresight has survived wars, crime, corruption, economic crises, and terrorism for over 200 years. It is a self-correcting system that was designed to grow with the nation. During this evolution, economic concerns and support for the poor have been paramount in economic policy.

This might have changed on February 29, 2009, when the current Secretary of the Treasury Henry Paulson told Spike O’Dell of WGN in Chicago that the penny should be eliminated saying, “The penny is worth less than any other currency.” Paulson, who can turn a phrase as well as his boss, also shows that he is out of touch with the rest of America when he said, “I walk around with very little cash in my pocket, like everyone else.”

Apparently Paulson, the former chairman of Goldman Sachs, does not venture far from his office at the Department of the Treasury into southeast Washington or into areas of northeast where lesser advantaged people live who do not have a pocket full of credit cards. And with credit issues being at the center of the current economic crises, it is irresponsible for the government’s leading financial manager to pitch pennies for those who have to pinch pennies.

Those who want to end the production of the cent says that cash payments would be rounded. But at whose advantage? When there was an issue with the half-cent, the market adjusted on its own. So when the coin was eliminated in 1857, there was almost no economic impact. However, prices are not rounded, sales taxes are calculated in fractions, and the coin is used many transactions.

The United States has been striking one-cent coins every year since 1793. It is the most common coin, yet has produced some legendary coins like the Large Cent, the 1856 Flying Eagle Cent, 1877 Indian Head Cent, the 1909-S VDB, and the king of all errors the 1955 Doubled Die Obverse.

While the elite like Paulson and Richard Safire never consider the person who driving their limousines, the rest of us worry about the impact on the economy and the injustice its removal from the market would bring. All they consider is that the rising price of zinc and the production process of the United States Mint, it costs 1.6-cents to strike one coin, which allegedly affects the taxpayer.

What they do not tell the public is that the US Mint does not receive any appropriations from the Treasury General Fund. All of the operations of the US Mint (and the Bureau of Engraving and Printing) are funded through the Public Enterprise Fund. The PEF is a special account where the profits from the sales of coins, called seignorage, are deposited. Whether the sale is to collectors, or to the Federal Reserve Bank branches who pay face value for the coins, the difference from the manufacturing process and the purchase is deposited in the PEF. When congress determines the budget for the US Mint, the money used is withdrawn from the PEF. Congress then uses the balance for other purposes.

The Mint and BEP are manufacturers of money that are profit making organizations, and they have a very good profit record—better than any top ranked company. They have become self-sustaining agencies with a financial record better than most other government agencies. Unfortunately, that does not enter the discussion of the detractors.

Another area the detractors discount is the good that can happen from the penny. Remember the Penny Harvest Field that was on display in December at Rockefeller Center in New York City? While the pennies are being counted for the 2007 effort, the 2006 project collected over $643,000 for New York area charities. For a coin that allegedly has little to no purchasing power, that is a lot of money to support good programs.

Many of us who started collecting at a young age would either rummage through our parents’ change or worked cutting grass, delivering newspapers, and other odd jobs where the payment helped fuel that passion. Pennies were easy. We would buy the ubiquitous blue Whitman Folders and try to fill the holes with what we find. It was an inexpensive way to start a collection and have some fun. Today, there are companies that bulk lots from hoards that can be searched to create a nice collection of circulated coins. It is the same principle accounting for the economic changes since I started collecting 38 years ago.

Whether you are a collector, investor, or concerned citizen, I urge you to consider all of the facts. While the Ruppert Murdock-owned Wall Street Journal mentions the near dormant Citizens for Retiring the Penny whose only argument is that pennies cost too much to make, organizations like Americans for Common Cents looks to educate people with carefully constructed and referenced facts.

As a collector and taxpaying citizen of the United States, I believe Paulson and his ilk are wrong and should not be in a position of power with an attitude he has shown. As I type this, he will be in his job no more than the next 319 days!

I will leave you with one last thought: If the cent is obsolete and economically infeasible with little buying power, then why is the Federal Reserve ordering so many for circulation?