Tuesday, June 7, 2011

That clinking-clanking sound...

William Dewald speculates on the unpopularity of coins in the US:

The reason is that the denominations of U.S. coins have not changed in a very long time, despite inflation in U.S. prices. Compared with 1950, the price level today is 10 times as high. That means that today's dollar has the purchasing power of a 1950 dime, today's dime of a 1950 penny and today's penny is worth almost nothing, and neither is the nickel. It is not surprising that the "dime store" of 1950 is today's "dollar store."

Our coinage lacks higher value coins to match the purchasing power of the quarters, half dollars and dollar coins of 60 years ago.

Nerds like me love coins. When you talk to normal people, most consider them an inconvenience, and a few act like the weight of a few coins will bend their spines in half. This is most prominent when dollar coins come up, but is an issue with all metal money, which is rarely spent--most people just save it up in a jar until there's enough to redeem for folding money.

Part of this comes from the fact that people are getting more and more accustomed to making most or all of their purchases through computer handshakes, a habit that makes all money less convenient*. But certainly another large part of the problem is that most of our coins are essentially worthless. There truly is no point to carrying around pennies; their value is so trivial that you need rolls of them to buy a cup of coffee, and the three or four you get in change (all old aphorisms aside) are so worthless that saving them is essentially pointless. My father saved every penny he got in change for most of his life. Almost half a century's collecting got him about 350 bucks, in two big jars that we had to bail out into bank bags to move. Even nickels and dimes are on the high end of useless, leaving only the quarter, which gets a good amount of circulation, the half dollar, which is struck mostly for collectors and almost never seen in the wild, and the legendarily unpopular dollar coin.

Value-to-weight ratios matter. Back when our coins were made of precious metals and their weights were proportional to their values, silver dollars were big, heavy coins that--much as I hate to admit it--were rarely used because of their inconvenience. Small coins from a hundred years ago are usually heavily worn from circulation, to the point that silver investors discount bags of dimes and quarters from their nominal metal value to account for loss due to wear. But hundred year old Morgan dollars are routinely found in very good condition with sharp details, because they spent their whole lives in safes and bank bags, sitting around as a store of value but rarely exchanged for a meal or a shirt. The situation today is more extreme, when even dimes and nickels have too low a value-to-weight ratio to be worth carrying. When was the last time you saw a heavily worn dime?

If the Mint wants its coins to circulate (and I'm not entirely certain it does), it has to offer coins that meet our needs under the current dollar, not legacy coins that made sense for the dollar of generations ago. The way I see it, we have three options--in order of likelihood of adoption:

First, we can redenominate the dollar. That is, the "value" of each new bill and coin would be significantly (say, ten times) higher and more practical for commerce because there would be significantly fewer dollars, but the amount of wealth in circulation obviously wouldn't change. In effect, we'd be issuing currency with higher face values, but the redenomination would keep the system familiar and ease the physical transition (since, for example, vending machines and banks' rolling and counting machines wouldn't need to be replaced). The one-time psychological and calculation difficulties of the actual transition would probably sink this plan.

Second, we can completely redesign our currency system. A new line of currency with a 25 cent coin the size of a dime, a 50 cent coin the size of a nickel, a dollar coin the size of a quarter, and (as long as we're dreaming) a five dollar coin the size of a current half dollar, with bills starting at ten dollars, would much better serve the current market. Any change in currency is wildly unpopular when proposed, and I expect there'd be much wailing and gnashing of teeth over the crushing weight of a few coins--despite the fact that this system would be closer to the historical norm--and over the injustice of being unable to buy anything for less than 25 cents. Together with the aforementioned physical issues of creating a new coinage system from scratch, these problems will, again, probably rule out such a change.

The third option, and by far the most likely to actually happen, is to continue ignoring the issue, perpetually striking hundreds of millions of worthless coins that nobody has a compelling use for, until ubiquitous electronic payment and inflation make all coins completely irrelevant and we can start arguing over whether we should still be printing the dollar bill. Eventually, merchants will decide on their own not to use worthless coins, Mint policies be damned.

[* - The smart phone is also making some people generally averse to carrying anything as it relentlessly consolidates tools. It won't be long before people are replacing their keychains with electronic locks, and bitching about the hassle of being issued a plastic card to open their hotel rooms with. It's not really unreasonable; the technology can probably be made more secure than cash and keys, so why would the average person need anything on a regular basis beyond his personal computer and a few purely physical tools like a pocket knife and a handgun? I wouldn't want to ditch my fountain pen and notebook, but a current-generation Droid would certainly do the same job better. For the urbanite who doesn't recognize the utility of a knife and a gun, and doesn't value anonymity, what incentive is there to have a toolkit beyond his iPhone?]

1 comment:

  1. "That means that today's dollar has the purchasing power of a 1950 dime"

    I've been saying that for 10 years now. In late 2001 I learned that a "day's pay" was $8 in the 50's.

    There's been a good bit of inflation since 2001 too.

    So when you see those "low" prices on 1950's era surplus gun ads, remember to move the decimal point and remember that was a used gun back then.