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Could the 2017 Lincoln Cent Be the Last One?

Well, it may be… Especially if leaders in both houses of Congress have their way! Production costs, 'electronic money', and public apathy may doom the venerable cent. Read on to get caught up on the history of the cent and its possible demise!

First, a little history….The very first production coins struck by the U.S. Federal Government, on machinery owned by the government, and in the official 'Mint' of the United States was a penny. Beginning on March 1, 1793, the Philadelphia Mint commenced striking the famous, and now rare, 1793 'Chain' Cent. Over a period of about a fortnight, 36,103 of these legendary U.S. coins were struck. At this point, the U.S. became a nation of the 'Decimal' coinage system. Gone were the pence, groats, shillings, florins, and so on from English history. Now it was decimal…100 pennies equaled one dollar. It's something we take for granted today but it was revolutionary in the 1790's. Interestingly, these first coins of the U.S. Mint, along with every large cent struck during the subsequent 65 years was not 'Legal Tender'! They had to wait until 1965, more than 100 years after removal from circulation to finally become 'Legal Tender'!

While this concept of '100 cents to the dollar' decimalization was good and useful, the 'Penny' turned out to be a burden the country still bears today, 225 years later.

The burden is, of course, cost versus face value. In the early years, the 'Penny' was supposed to have a face value of 1/100 dollar, and its intrinsic value (Copper) plus minting costs would be less than 1/100 of a dollar. The difference between the production cost (Materials plus labor) and the face value of the coin was the 'Profit' or 'seignorage' the government earned on every coin they struck. This same formula applies to every coin ever made by the U.S. (or any other) Mint. So, from the very beginning, the Mint was a profit center for the government.

But time generally identifies problems, or lack of sufficient thought with everything. the large cent couldn't escape from that universal law, and by the 1850's time had run out for the large cent. Problems that seem familiar to us today are similar to the problems of the 1850's. Inflation raises the cost of everything. Materials, equipment, labor and debt service obligations all rise as a result of inflation. And inflation, if controlled, advances the economy of the state. While some inflation is beneficial, it also causes 'collateral damage'. So….By the 1850's, the buying power of the large cent was less than it had been in 1793. It was still a 'Penny', but it wouldn't buy as much as it did just 65 years earlier. And the production costs, despite advancements in industrial capability at the Mint, had been rising for 65 years. So it cost more than one cent to make a large cent. And the public disliked the heavy, low-value coin. Sound familiar? All we're missing here is the 'electronic money' component of today's situation.

So, to get back on a profitable basis, the Mint decided to replace the large cent with a new design…The 1857 Flying Eagle small cent. And the cycle started all over again…Profitability erodes and action is taken to restore the profits. And so it was in 1864 when the 'nickel' content was removed from the metallic alloy used to strike 'cents'. The cycle repeated in the 1940's when the value of copper escalated and wartime needs forced a re-evaluation of the metal content in pennies and nickels.

Again in 1962, the Mint changed the composition of the cents. The 'French Bronze' alloy first adopted back in the 1800's was replaced with a cheaper 'brass' alloy. Then the final (up to now) change to the alloy occurred in 1982 when virtually all the copper was removed from the cent. The brass blanks of 1962 - early 1982 were replaced by the now-familiar 'Zinc' cents with a thin coating of copper on the surfaces of the coin. But the cent soldiered on because of he requirements of commerce. Below is a timeline of the U.S. cent from the beginning in 1793 up through 2017. Will 2017 be the last one?

Today, in 2017, economic reality has caught up with the penny. It's expensive to make, buys very little, and is becoming obsolete because of 'electronic money'. Based on Mint production figures and associated costs for 2016, the U.S. Mint spends 1.5 cents to make 1 cent. As an eye opening example of this cost overrun, consider the following:

In 2016, the Mint made for circulation a total of 9,118,400,000 Cents at Philadelphia and Denver. (Source: U.S. Mint) That's a total face value of $91,184,000. At a cost factor of 1.5, the government spent $136,770,000 to make those pennies. That's a net loss of $45,586,000! Nickel production costs also exceed the 5¢ face value, so they add to the loss.

The new administration in Washington, with a majority in both houses of Congress (The first time since 1928 that Republicans had it all!) is looking for ways to cut the Federal Budget. That brings us to the main point of this short essay….

2017 Could Be the Last Year 'Pennies' are Made!

On March 29, Senators John McCain and Mike Enzi introduced a bill in the Senate known as the 'Currency Optimization, Innovation, and National Savings Act of 2017 (COINS Act, S. 759) Among other provisions, the Bill calls for the elimination of the Cent. The Bill specifies a study to be performed by the Government Accounting Office (GAO). The GAO would have 6 months to make a recommendation. If the Senate bill passed now, the study would be due in December…Perfect timing to 'suspend' the Cent after the end of 2017.

On May 2, 2017, a House of Representatives version of the 'COINS' Act was introduced. This bill calls for a determination of the 'viability' of the cent. While the Senate Bill requires a 3-year suspension before making a final decision, no such mention is made in H.R. 2299. If passed, that would presumably allow immediate discontinuation of the Cent.

How Will This Affect Collectors?

In short, pretty dramatically. Not only would 'Pennies' disappear from circulation, but various versions of the bills also included a provision to prohibit the Government from 'Selling' the 1 cent coins in Proof sets or Annual Mint Sets. The Penny will be Gone!

Add in the fact that the penny would go out on a high note…The 2017-P cent is a commemorative, and it makes pretty good sense. The government would save about $50 Million annually just on pennies! From an economic perspective, it's a no-brainer'! Will it happen? Well, two things stand in the way as of now… The U.S House and the U.S Senate. Can they reconcile their bills and pass something? Recent history hasn't been on their side in that department, but this is about SAVING MONEY, not spending it, so this author thinks chances are pretty good it will pass in one form or another…..So my advice….Buy pennies while you still can!