MAY 10, 2013
A measure introduced in the U.S. Congress seeks to replace the base metal of most American coins with iron. The move would slash the nickel and copper content of U.S. coins to a fraction of today’s already reduced levels. Like past changes in metal content, the bill represents a logical continuation of currency debasement and calls into question the strength of U.S. fiat currency—yet another sign of the decline of the global monetary system.
Congressman Steve Stivers (R-OH) introduced the bill, H.B. 1719—the “Cents and Sensibility Act”—on April 24. It mandates that pennies, nickels, dimes and quarters be composed primarily of steel; specifically U.S. produced steel. He presents the bill as a budget measure, stating, “This legislation is a common-sense solution to decrease the cost of minting our coins. Not only will it cost less, but steel is an American resource that we have here at home and can be manufactured right here in our backyard.” His office asserts that, according to the House Financial Services Committee, the U.S. government would save up to $433 million over 10 years.
Conveniently, Worthington Industries, a steel processor that supplies steel blanks for Canadian currency, is located in Stivers’ district and strongly supports the bill.
At present, a penny contains 97.5% zinc and 2.5% copper (for exterior plating) while a nickel contains 75% copper and 25% nickel. Yes, a nickel contains more copper than a penny! Dimes and quarters contain a different cupronickel blend of 8.33% nickel to 91.67% copper. As of May 8, a penny contains one-half cent worth of metal; nickels contain 4.6 cents. Factoring in production costs, the U.S. Mint reported that a penny cost 2¢ and a nickel cost 10¢ to manufacture in 2012. Interestingly enough, an external consultant to the Mint found that steel pennies would cost the same as the zinc-copper blend. A steel coin mandate would all but eliminate copper, nickel and zinc from the currency and significantly reduce the intrinsic metal value of nickels, dimes and quarters.
Though not considered precious metals per se, zinc, nickel and copper are often mined from locations also rich in silver. Indeed, the vast majority—somewhere in the range of 70%—of silver mining occurs as a by-product of other metal extraction. Thus the amount of silver mined depends on the demand for these other metals. In 2012, the U.S. Mint consumed 14,662 metric tons of zinc for new penny minting and 6,244.8 metric tons of nickel to produce nickels, dimes and quarters. Another 36,031 metric tons of copper went into nickels, dimes and quarters. Taking this much out of demand for zinc, nickel and copper may reduce new supplies of silver, introducing more volatility and price increases into the silver market.
Besides threatening the world’s supply of silver, Stivers’ bill draws attention to the lack of real value in U.S. currency. Gold coins as circulating currency ceased in 1933. Silver was largely eliminated from coins by 1965. Copper was dropped from pennies in 1982. Each change precipitated a rush to hoard the discontinued coins, which in turn triggered the government to flood the market with the new issues—offering a near perfect examples of Gresham’s Law: “Bad money drives out good.” Expect a repeat of this phenomenon if Stivers’ bill becomes law.
To students of economic history, these currency debasements sound both familiar and disturbing. As Mike Maloney explains in , great civilizations have resorted to debasement to squeeze more profit from their citizens. Pocketing the difference between face values and actual cost amounts to no less than a hidden tax, but one more nefarious than an overt tax. Fiddling with coin content creates questions about the integrity of government policies and destabilizes confidence in the currency. It makes sense: If a silver dollar isn’t really silver, is it still a dollar? Why?
Sure enough, from Athens to Rome to modern times, debasement of currencies has occurred in times of stress. Each time, however, debasement unleashed destabilization and introduced inflation. Indeed, debasements of Athenian silver coinage created the first state inflation in the West. Moreover, frequent debasement is a sure sign of a weak state teetering on the edge of collapse. Economists can trace the collapse of the Western Roman Empire by tracking the rate of currency debasement. As the third U.S. currency debasement in a hundred years, Stivers’ bill begs the question—is the United States economy entering a terminal collapse?
Rep. Stivers’ bill may not pass—this is the third year he has introduced the measure. However, since 2010, the U.S. Mint has studied alternate metals for use in coins. Steel alloys are among the top candidates. Regardless of how it comes, the reduction or elimination of zinc, nickel or copper from U.S. currency is a debasement. Following so quickly on other debasements, these initiatives concretely demonstrate the weakness of the American currency and the ongoing determination of the government to maintain the fiat currency shell game for as long as possible.