Penny Dreadful

One problem with pennies is that their metal value exceeds their face value.

Several years ago, Walter Luhrman, a metallurgist in southern Ohio, discovered a copper deposit of tantalizing richness. North America’s largest copper mine—a vast open-pit complex in Arizona—usually has to process a ton of ore in order to produce ten pounds of pure copper; Luhrman’s mine, by contrast, yielded the same ten pounds from just thirty or forty pounds of ore. Luhrman operated profitably until mid-December, 2006, when the federal government shut him down.

The copper deposit that Luhrman worked wasn’t in the ground; it was in the storage vaults of Federal Reserve banks, and, indirectly, in the piggy banks, coffee cans, automobile ashtrays, and living-room upholstery of ordinary Americans. A penny minted before 1982 is ninety-five per cent copper—which, at recent prices, is approximately two and a half cents’ worth. Luhrman, who had previously owned a company that refined gold and silver, devised a method of rapidly separating pre-1982 pennies from more recent ones, which are ninety-seven and a half per cent zinc, a less valuable commodity. His new company, Jackson Metals, bought truckloads of pennies from the Federal Reserve, turned the copper ones into ingots, and returned the zinc ones to circulation in cities where pennies were scarce. “Doing that prevented the U.S. Mint from having to make more pennies,” Luhrman told me recently. “Isn’t that neat?” The Mint didn’t think so; it issued a rule prohibiting the melting or exportation of one-cent and five-cent coins. (Nickels, despite their silvery appearance, are seventy-five per cent copper.) Luhrman laid off most of his employees and implemented his corporate Plan B: buying half-dollars from banks and melting the silver ones (denominations greater than five cents aren’t covered by the Mint’s rule); mining Canadian five-cent coins (which were a hundred per cent nickel most years from 1946 to 1981); and lobbying Congress.

Luhrman’s experience highlights a growing conundrum for the Mint and for U.S. taxpayers. Primarily because zinc, too, has soared in value, producing a penny now costs about 1.7 cents. Since the Mint currently manufactures more than seven billion pennies a year and “sells” them to the Federal Reserve at their face value, the Treasury incurs an annual penny deficit of about fifty million dollars—a condition known in the coin world as “negative seigniorage.” The fact that the Mint loses money on penny production annoys some people, because one-cent coins no longer have much economic utility. More than a few people, upon finding pennies in their pockets at the end of the day, simply throw them away, and many don’t bother to pick them up anymore when they see them lying on the ground. (Breaking stride to pick up a penny, if it takes more than 6.15 seconds, pays less than the federal minimum wage.)

Various people have proposed various remedies, one of which is to get rid of pennies altogether. This is a step that many countries have taken with their least valuable coins—among them the United States, which stopped making half-cents in 1857, when a half-cent, by almost any measure, had significantly more purchasing power than a dime does today. There are problems, though. One is that many people are quite attached to one-cent coins. Another is that some people fear that merchants in a penny-free economy, when making change on cash purchases, might be more inclined to round up than to round down, thus penalizing consumers. A third is that eliminating pennies would increase our reliance on nickels, which now cost almost ten cents to manufacture and so generate even more negative seigniorage, per coin, than pennies do. What is to be done?

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America’s assortment of circulating pocket change is anything but immutable. Colonial-era settlers initially had no coins (or bills) of their own. They therefore depended heavily on barter, and conducted cash transactions with British coppers and other foreign coins, especially Spanish reals. (The “dollars” mentioned in Article I of the Constitution were actually eight-real coins, also known as pieces of eight.) British silver coins were scarce in America because Britain, which had little domestic access to precious metals and hoped its colonists would soon get busy shipping treasure in the opposite direction, forbade their export. In 1702, the alchemy-obsessed master of the British Royal Mint, Isaac Newton, melted down and minutely analyzed the coins of a number of countries to determine their exact content. The results of Newton’s assay were used, among other things, to set the bewildering, constantly shifting exchange rates that were a part of daily commercial life in England and America in the early eighteenth century.

Congress created the Mint in 1792, and its original headquarters, in Philadelphia, was the first government building to be erected under the authority of the Constitution. The first U.S. coins, produced that year, were silver “half dismes,” or half-dimes. They were worth a twentieth of a dollar and may have been manufactured, at least in part, from silverware donated by President and Mrs. Washington. The first U.S. coins to circulate widely were probably one-cent pieces struck in 1792 or 1793. They were made of pure copper, and were slightly larger in diameter than a Sacagawea dollar and about half again as heavy. The first Lincoln cent was minted in 1909, on the hundredth anniversary of Lincoln’s birth. It replaced the Indian-head cent, and was the first circulating American coin to be stamped with the likeness of a real, identifiable person. It was made of bronze and weighed about twenty-five per cent more than the cent we use today.

The scarcity of one metal or another has prompted sporadic crises in American coin production. In 1943, the Mint, hoping to preserve copper for military uses, experimented with a number of materials, including Bakelite, before settling on galvanized steel. These coins were prone to rust, especially near the edges, and were so unpopular that in 1944 the Mint went back to using copper, much of it from spent shell casings. Enough steel cents were made, however, that they were still turning up twenty years later, when I made a brief go at coin collecting. (I had all three versions—from the Mints in Denver, Philadelphia, and San Francisco.) In the early seventies, when the value of the copper in a penny had risen to almost a penny, the Mint produced about a million and a half Lincoln cents made of aluminum. Congress rejected that idea, and the Mint destroyed all the aluminum coins, except for a dozen samples that were kept by congressmen and others. Possessing these coins, which are dated 1974, is against the law, since they are considered by the Mint to be purloined government property; one of them—which numismatists refer to, ominously, as the Toven Specimen—is thought to be held by heirs of a Capitol police officer.

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