What’s a penny worth?

Amusing analysis of the value of coins in circulation, via the Chicago Fed:

"In the old days, a commodity was chosen to serve as both the standard to measure value and the medium of exchange. Thus, if silver was the chosen commodity, prices were measured in, say, pounds of silver, and lumps of silver of a standard size (called “coins”) were exchanged for goods and services. This is called a commodity money system. In the early Middle Ages, there was only one size of coin; it was called the penny and made of silver with a little copper alloyed for hardness.

The quantity of money in circulation was determined by two actions: minting and melting. The stock of money increased through minting new coins, which could be done by monetary authorities on their own account or by private individuals taking metal to the mint for conversion into coins. The stock of money decreased through the melting of coins. If the price of metal in terms of money fell enough, it became profitable to convert metal into money by minting it. Conversely, if that same price rose high enough, it became profitable to convert coins into metal by melting them down. Minting and melting maintained within bounds the value of money relative to metal and to all other goods. Import and export of coins served the same purpose in keeping domestic prices in line with world prices.

Over time, the needs of trade required large silver coins and gold coins. The difficulty of maintaining fixed exchange values between coins of different sizes and different metals had two consequences. One was a process of repeated “debasements” that increased the proportion of copper in small denominations to make its content cheaper, so that by the eighteenth century the penny was made of copper. The other was, after much experimentation, the adoption in the nineteenth century of the gold standard."

Note that, thanks to the increases in commodity prices, a nickel is now worth more than 5 cents:


The Quarter remains the government’s most profitible coin: Less than a nickel’s  worth of metal, selling for 5X that amount!


What’s a penny (or a nickel) really worth?
François R. Velde
Chicago Fed Letter, February 2007

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What's been said:

Discussions found on the web:
  1. Fred commented on Feb 1

    Re: Commodities and inflation…

    From Ticker Sense:

    ISM Inflation
    In this month’s ISM commodities survey, respondents said they saw price increases in five commodities and price decreases in six, for a net of minus one. Below we have updated our chart which shows the relationship between the ISM commodities survey and the CPI. Historically, trends in the CPI have been preceded by the ISM survey. If this month’s survey is any indication, then the up tick we saw in December’s CPI report will prove to be short-lived.

  2. Brian commented on Feb 1

    Interesting graph but the data is behind now. According to coinflation.com the Nickel is 142.12% and the penny is 90.64%!

  3. Joe commented on Feb 1

    If you want to read a really good history of money pick up Murry Rothbard’s “What Has Government Done to Our Money?” Its a very guick read, but very informative.

  4. Mike M commented on Feb 1

    “Thus, if silver was the chosen commodity, prices were measured in, say, pounds of silver, and lumps of silver of a standard size (called “coins”) were exchanged for goods and services. This is called a commodity money system.”

    Now, the monetary system is a debt based tragedy created by banks and the Federal Reserve. There is no fixed money supply, hence the ever increasing cost of living and devaluing of money.

    I prefer a money that retains value and buys more goods and services at a lower cost over time.

    Shame on the Fed.

  5. shawn commented on Feb 1

    I hope the market top around here soon, because I am seeing Dow Jone Transportation has successfully penetrate upside of the upper trend line.

    If it makes a subsequent high (which is very close), then both DJIA and DJTA will give the Dow Theory a New Bull Market!!

    Bears will then extinct for many years …

  6. Estragon commented on Feb 1

    Mike M – be careful what you wish for. One significant advantage to a dimensionless currency is that it allows prices to adjust in relative rather than nominal terms. This is particularly important for prices which tend to be sticky (such as wages or housing) in nominal terms.

  7. GRL commented on Feb 1

    If you combine coins made up of the two metals, silver and gold, say, silver (half)dimes through dollars and gold coins of denominations of one dollar and up, you have the monetary system known as bimetalism. As the price of one as measured in units of the other rises, it becomes profitable to melt down the relatively more expensive coin and trade it for coin made of the other relatively cheaper metal.

    The government can do the same thing, by making more coins of the relatively cheaper metal. Throw in the California gold rush, the comstock load silver discoveries in Nevada, the eastern industrialist and western farming interests, combined with adoption of the gold standard, and you have the all the ingredients needed to drive U.S. politics during the latter part of the nineteenth century, culminating in William Jennings Bryan’s “Cross of Gold” speech.

  8. Ross commented on Feb 1

    I started an experiment in 1967. Started saving copper pennies to see if someday it would be considered a ‘shrewed’ investment decision…. Stopped when we went to zinc. About 1980. Anyone hazzard a guess at what 400lbs of copper pennies (plus random numismatic value)would be worth today?

  9. devilfutility commented on Feb 1


    I know some people who are all into investing in Metals (especially Silver). Some of the arguments seem to make sense, but they seem way to bullish on metals. I lost money in Pan American Silver last year (I got out when the Bolivian president socialized some energy companies). What do we think on this board about the longterm prospects of Silver?

  10. US Gold Coins commented on Apr 12

    as a coin collector, I hope that this does not cause the US Mint to stop minting coins. Coins are a beautiful part of history.

  11. canadiangold commented on Apr 16

    I would love to get my hands on a giant 5 oz krugerrand.

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