Why pennies cost more than they're worth
theincidentaleconomist.com
theincidentaleconomist.com
He probably would have thought us to be morons for hand-wringing over a few cents.
If you're inventing a new currency from scratch, why not have a smaller minimum denomination?
What's a single Zimbabwe dollar going to get you? Nothin'.
If you tell me that something is worth five dollars then I'm going to expect to, for instance, be able to get two loaves of bread for it. Or maybe half an hour's work from an unskilled labourer.
Of course the conversion ratio between loaves and hours was different then (I assume bread is a lot cheaper/labour is more expensive) which is why we can't really convert between today's money and the money of the 1770s.
Once the US got done with revolting and got around to writing a constitution they decreed the "mill" would be 1/10th of a penny. They seem to have largely only useful for sales tax.
I think a smaller coin would have been impractical:
• Coins were self-backing with their metal value. Even in copper, it gets too small to keep track.
• Manufacture was more labor intensive, the cost to produce a very low coin is a problem.
• Mass production hadn't devalued objects, so things we think of as cheap today would have been relatively more expensive.
• If you live in a small community and "run a tab" at the general store, you don't make payment in small batches.
None of these speculations should be mistaken for accurate historical facts.
http://footguards.tripod.com/08HISTORY/08_costofliving.htm
Half a penny = half a loaf of bread, implying bread was five bucks a loaf... just a bit too expensive by today's standards.
1.5 pennies was an hourly rate for a boy to chop firewood -- I bet you could hire a kid for $7.50 an hour nowadays.
1 penny was enough gin to get drunk on... a third of a bottle of the cheapest $15 gin would get you pretty drunk.
4d was a quart of beer. OK, that's pretty expensive.
1s (12 pence) gets you a dinner at a steakhouse with beer... yep, sixty bucks is a plausible price for a steak dinner. It's also the sign-on bonus for joining the Army, which seems like a bit of a gyp, or postage for a letter from London to New York. (!)
So in conclusion, if you take the one penny to five dollars conversion, then some things (basic foodstuffs) seem expensive while others (labour) seem cheap. This is consistent with the fact that people were much poorer (in real terms) back then, and you'd have to chop wood for 40 minutes just to buy a loaf of bread.
It still seems like a weird way to use money, but I guess that's just because I've grown up in a world where it's entirely possible to undercut your competition by 1% on the price of a loaf of bread. If that ability went away, I might not miss it.
But pennies are re-used multiple times. So a cost of two cents is fine when you consider that.
Now a better question to ask is what are the transactional costs of maintaining prices that require pennies (as oppose to, say, 5 cent increments). Those costs are the better ones to look at, I think.
Right, until you get to the point where the metal inside a penny is worth so much more than the face value that it becomes worthwhile for somebody to start melting them down. Luckily that doesn't seem to be the case yet (at least not with the new-denomination pennies).
They're still pointless coins, though. Get rid of them.
I see no major problem with getting rid of it - other countries have, after all. http://en.wikipedia.org/wiki/Swedish_rounding
Nickels are worth about 6 cents I recall. Don't get caught melting down pennies or Nickels for the guaranteed profit because it is a crime. However, as inflation continues, the value of the materials in the coins will rise to infinity, at that point all coins will mysteriously vanish and the mint will not make new ones. They will instead add zeros to the dollar bills.
Buy gold, it's going to $5000 an ounce in the next year. Gold is flatline, it is a stable store of value, the gold is not gaining value, it's the unit of measure you're using that is depreciating.
http://en.wikipedia.org/wiki/File:Gold_price_in_USD.png http://en.wikipedia.org/wiki/Gold_as_an_investment
What I meant to say that if you worked hard for a year 200 years ago and saved yourself maybe 10 ounces of gold, and buried it in the ground for 200 years and now you have those 10 ounces. The goods and services you could buy between then and now would be comparable. whereas the various currencies he used 200 years ago would be either completely worthless or decreased in value 99.99%.
Gold is going to be around for another 50 years, and you'll be able to buy things with it. The US Dollar however is not. When I say gold is flatline, I mean that in principle a ounce of gold saved will buy you nice things 50 years from now, a thousand dollars now will buy you nothing 50 years from now.
I'll tell you what I tell everybody who thinks there's going to be US Dollar hyperinflation: I bet you a trillion dollars that's not going to happen.
Seriously though, predictions are tricky, especially about the future. It may be worth injecting a tone of a little more uncertainty into your pronouncements about what's going to happen in the future.
Personally I'd have less confidence in the buried gold or the buried dollars than I would about the value of the land you're burying it under.
There's nothing special about gold. It has some nice properties that make it intrinsically valuable, but not more than copper or other metals. The reason basically all cultures value gold is that other people like it also, and it is hard to counterfeit.
That being said, gold goes through the same ups and downs in perceived value as any other commodity. For what I have read, it is trading now more or less around its long term historic value (think centuries long). If there's so much buzz about gold now, it is because it is coming from a few decades long of sub-valuation, but this is correcting fast, and the pendulum begins to swing now to the other side. If you are not able to pick your time correctly, you'll be loosing money soon enough.
Besides, there is the fact that it is a long time investment. If you are forced to liquidate your position to pay whatever need you have, you will probably loose money. And there's the commissions that will eat out on each transaction, so you better hold to gold until it is a really good time to sell.