Leave it to the Government

14Dec06

Via Boing Boing, USA Today has written an article about how the metal used in nickels and pennies has become more valuable than the coins’ face values.

Soaring metals prices mean that the value of the
metal in pennies and nickels exceeds the face value of the coins. Based
on current metals prices, the value of the metal in a nickel is now
6.99 cents, while the penny’s metal is worth 1.12 cents, according to
the U.S. Mint.

That has piqued concern among government
officials that people will melt the coins to sell the metal, leading to
potential shortages of pennies and nickels.

I don’t see this as a sign of a failing economy, but I do see this as an interesting quirk when it comes to money. Because (historically at least) is tangible, it has to be made out of one type of material or another. As inflation rises steadily through growth of the money supply, eventually those materials could become more valuable in raw form than as they money they’re coined into.

However, I fully support the government’s move here for a very simple reason. Melting down currency of any kind directly changes an the money supply in an economy. Quite frankly, I’m not willing to let individuals, foreign or domestic, be in charge of the money supply of my primary currency.

On a personal level, the value of the money I hold may increase due to falling money supply, but depreciation often is indicative of more harm than good. Additionally, increased volatility in the value of our currency would scare investors away, weakening the economy as a whole.

To briefly hit on a subject too large for one post, this activity serves to bring the currency back to the gold standard, or in this case the copper standard. After a while, the prices of pennies and nickels would re-establish themselves at a penny and a nickel, restoring “convertibility” from the penny to its metal. This would only work in one direction though, because individuals couldn’t convert metal back into currency.

It’s an interesting topic, with many far reaching ramifications. However, since most of them only serve to destabilize the economy the only suitable option is to leave the money supply in the government’s hands. It’s better for everyone that way.

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