In Green’s latest screed posted on YouTube he ruminates about how the “penny” is worthless and the U.S. Mint should not be producing them. In the comments to the video, he claims that he read two articles, one from The Washington Post and another from Consumer Affairs, about the alleged opportunity costs of the coin. In fact, The Washington Post article is an opinion piece and has limited value in the argument. What Green did not say is that both articles are over four years old. Apparently, he could not find anything more recent or factual.
I found the video on the The New York Times block of Stephen J. Dubner, a co-author of the Freakonomics books and journalist who like some of his other The New York Times brethren has issues with facts (e.g., Duke lacrosse case).
Starting with the grossly obvious: The United States Mint does not strike “pennies.” The coin is one cent and not a penny. The penny is the lowest denomination of the current British monetary system. Back when Alexander Hamilton devised the U.S. monetary system, the lowest British denomination was the Farthing, ¼ penny. Rather, Hamilton called the coins “cents” to distinguish the United States coins from the British coins.
But the name of the coin is a basic issue. The real measure of the alleged journalist’s muster is if he could look beyond the salacious drivel to discover the truth that may actually cause real thought and consideration from the public. If Green and Dubner would do their homework they will know that:
NO TAX DOLLARS ARE USED IN THE MANUFACTURE OF COINS AND FEDERAL RESERVE NOTES IN THE UNITED STATES!
“Wait,” you might interrupt. “Aren’t these government agencies that are funded by congress?”
Yes, both the U.S. Mint and the Bureau of Engraving and Printing are bureaus under the Department of the Treasury whose budgets are approved by congress. However, the money that congress allocates to these bureaus are NOT taken from the general fund.
Both the U.S. Mint and the BEP are profit making bureaus. After manufacturing the money, it is sold at face value to the Federal Reserve for distribution to member banks and then to the public. The difference between the face value of the money and the cost to manufacture the money is the profit—called seigniorage. Even though the one cent and five cent coins cost more to manufacture than their face value, the U.S. Mint continues to generate profit from the sale of all coins sold to the Federal Reserve in addition to the sales of bullion and collectible coins.
According to the 2009 U.S. Mint Annual Report (covering Fiscal Year 2009: October 2008–September 2009), they earned $98.1 million in seigniorage. That is a profit of $98.1 million in a down economy!
When the U.S. Mint is paid by the Federal Reserve for the coins, a collector purchases collectibles directly from the U.S. Mint, or a bullion dealer buys bullion coins, the seigniorage is deposited into a special account called the United States Mint Public Enterprise Fund (PEF) as required by law (see 31 U.S.C. §5136). As sales are deposited in the PEF, the law requires that the U.S. Mint use the money in the PEF for budgetary reasons like to manufacture coins, maintain facilities, pay employees, etc. No tax money is deposited in the Public Enterprise Fund and the PEF is managed like all general accounts by the Treasury Department. In fact, excess profit is required to be deposited in the Treasury general fund.
There is a similar fund for the Bureau of Engraving and Printing (see 31 U.S.C. §5142).
If the money that the U.S. Mint uses for all its operations is withdrawn from the PEF and if the PEF does not contain any tax receipts, then how does it hurt taxpayers if the U.S. Mint continues to manufacture one and five cent coins?
More philosophically, it is “[the] primary mission of the United States Mint is to produce an adequate volume of circulating coinage for the nation to conduct its trade and commerce.” This is done by striking coins that are ordered by the Federal Reserve System for placing into commerce. If the Federal Reserve only orders coins they need to sell to member banks, then why is does Federal Reserve Currency and Coin Services order so many one cent coins? If they are useless and cannot buy much, why do they keep ordering more cents?
It is unfortunate that a journalist chose to support his fact deprived argument using an editorially questionable YouTube video.
7 comments:
Your argument really holds no water. Since the mint loses money on the penny and nickel, they obviously make a tremendous profit on the other coins.
If they stop making the penny, then their profit would be even higher. If their profit is $98.1M with the penny, what would it be without it?
Think about it.
So what if their profit is higher. In the meantime, it does not cost the taxpayer anything for them to manufacture the coins.
In business, there is something called a loss leader. A loss leader is something that the business sell that loses money but makes up for it with other sales. Why is it all right for a business to have a loss leader and not the U.S. Mint? If you've ever made the argument that the government should be more like a business, then you should expect loss leaders because it is part of business!
I would love to see the penny and the nickel eradicated. They are nonsensical nuisances in an era when a pack of gum costs $1.
Wait a second. What happens when the money wears out and they need to replace it? Don't they have to take those coins back at face value too, making any "profit" transitory?
Hans: In the case of the BEP, they make more money. The Fed gives the bills back to the BEP and they destroy them for a fee. Then the BEP prints more currency and sells them at face value to the Fed. There is no "exchange" for warn currency.
As for the U.S. Mint, it is rare that coins are returned after being worn. Coins that are returned are run through a canceling machine that imprints a waffle pattern on the coin. The U.S. Mint does not charge for this service. However, the U.S. Mint does charge the Federal Reserve the full face value of the coins that the Fed buys to replace them.
And where does the federal reserve get the money to buy coins and bills from the mint and BEP? Follow the money any where in Washington and it will always wind up coming from the taxpayer.
Read http://coinsblog.blogspot.com/2011/07/tale-told-by-npr-full-of-fury.html.
"It is the money earned by the Federal Reserve through its banking operations as the United States central banking infrastructure. Deposits made to the Federal Reserve are made by member banks. Fees are paid by those banks for cash services, check clearing, and transfer services. The Federal Reserve also earns its money from making loans made to member banks. Some Federal Reserve branches make money on other services. For example, the New York Fed stores gold for foreign countries and sells currency overseas."
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