New Castle News

July 9, 2012

Mitchel Olszak: Making sense of the cost of cents

Mitchel Olszak
New Castle News

NEW CASTLE — Suppose, for the moment, that you are in the business of making widgets.

You manufacture high-quality widgets, among the most desirable in the world. Everyone wants your widgets.

But to produce your widgets, you must spend two and a half times what you can get for them. Because of manufacturing expenses and the required raw materials, producing widgets is a losing proposition.

The simple fact is that no business could survive for long operating in this fashion. The laws of economics do not allow it.

Unless you are the United States Mint.

Every one-cent piece the mint manufactures cost 2.41 cents, according to the department’s 2011 fiscal report. For about the past six years, the cost of producing cents has exceeded their face value. But Uncle Sam keeps churning them out.

And it’s not just the cent that’s a money loser. So is the nickel, which now costs 11.18 cents to manufacture.

The main culprit for increased coinage cost is rising metals prices on the open market. Back in 1982, the mint switched from mostly copper cents to ones with zinc cores in order to save money.

But even with that move, it’s now possible to melt cents and turn a profit on the raw metal content.

As a result, it’s illegal to melt coins in this fashion.

Historically, the minting of coins is one of the few areas of government that’s viewed as profitable. The term seignorage refers to the face value of coins over their costs. Whenever new coins are placed into circulation, the government can put the profit on its books.

But that only works if there is a profit. One still exists with dimes and higher denomination coins, but for how long?

If this is starting to sound like a screed against a wasteful government bureaucracy, it’s not. Blame here does not fall to the mint. Rather, it falls to us — as well as to our representatives in Congress.

The simple fact is that no serious movement exists to eliminate the one-cent piece because of perceived public opposition. People want their pennies, even if most of them end up in jars, dresser drawers and under seat cushions. Messing with money is politically dangerous business.

And let’s not forget the metal manufacturers that benefit from an irrational government policy. You can rest assured that key campaign contributions help to ensure that any real effort to eliminate the cent will be thwarted.

I bring all of this up, not out of any great desire to see an end to cent production, but to highlight how government works. Lots of people complain about federal spending and the national debt. But they ignore the root cause.

We are the root cause. Every dollar government spends has a constituency. If American money production was based on practicality and efficiency, it would look far, far different than it does now. You could say that about a lot of government programs.

But efficiency is rarely the driving force in government. Instead, it’s popularity; it’s what people are comfortable with; it’s what doesn’t rock the boat.

Sometimes this is good, and sometimes it’s bad. It’s always worth remembering that government is not a business. It’s a service and it responds to public demands.

But that’s only if the public really knows what it wants.

A penny for your thoughts?