Tuesday, May 17, 2011

A Tale of Two Pennies

It was the best of change. It was the worst of change. To Franklin it was a token of wisdom. It will be discarded in an age of foolishness.

This is the tale of two pennies … a coin of paradox and conflict with a heart of copper and a future of zinc.

The copper cent piece was created in the Coinage Act of 1792. At the time, the penny had about the same purchasing power as today's dollar.

The US Founders disdained the old world practice of putting images of royalty on coins. The first US pennies showed images of Lady Liberty. In 1859, the penny bore a Native American motif.

At the dawn of the progressive era, Teddy Roosevelt sought to revamped American coinage to glorify the nation's leaders. In 1909 the Lincoln penny became the first common US coin to bear the image of the US president.

In 1913, the United States established the Federal Reserve and the US gradually moved from sound money to a fiat money and inflation.

Since 1909, the penny has undergone two major design changes: The first change occurred in 1959. In celebration of the Lincoln Sesquicentennial, the US Mint changed the reverse of the penny from bunches of wheat to an image of the Lincoln Memorial.

In 1982, the purchasing power the US dollar had eroded to the point that it cost more than a penny to produce a penny; so, the mint quietly changed the formulation of the penny from copper to a zinc-copper mix.

(NOTE: In 1965, the mint changed the composition of dimes and quarters from silver to clad copper. This led people to hoard all silver coins, and many collectors began hoarding the wheat pennies. Wheat pennies were a rarity by the late 60s.)

The humble Lincoln penny went through two major transitions. There was a much celebrated cosmetic change of the reverse in 1959. There was downplayed change from copper to zinc in 1982. The next change in the penny's future is likely to be oblivion.

My supposition is that, in the long run, the change in metal composition will have a bigger impact on the price of coins than the cosmetic change of the reverse.

This supposition is a bit hard to test. There are some rare dates among wheat pennies. An unsearched roll of wheat pennies would have a large premium over an unsearched roll of memorial copper pennies. Buyers would be hoping to find a rare coin. Testing the market demand for zinc pennies is hard, as the coins are still in circulation.

A proper test would pit several low grade rolls of 1950 wheat pennies against low grade rolls of 1960 copper pennies, against similar rolls of 1980 zinc pennies. I suspect that the difference between the selling price of the copper and zinc pennies would be greater than the difference between the price of the 1960 Memorial and 1950 Wheat pennies.

I thought of trying this experiment on eBay. My problem is that listing and shipping costs are greater than the price of the coins.

I might try this experiment in a few years … after pennies are pulled from circulation.

(NOTE, the mint made the change from copper to zinc mid way through 1982. You need to weigh coins to determine their make up. This brings up the important point. The first step to collecting coins is to buy a digital pocket scale !)

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