Saturday, October 25, 2008
Save Your Pennies...and Nickels
The in-laws are in town, and while fiddling with my rapidly growing collection of nickels, they decided to show me some current Chinese currency. It was a very sad sight to see; they looked like they were made of aluminum, and light as a feather. They obviously can't be made of anything substantial. Which reminded me of our own newest wave of American "silver" dollar coins, like the Pocahantas dollar, which looks like an arcade game token. Pathetic. This may seem esoteric and uninteresting, but there's a point in here somewhere, I promise. The sad state of American currency is a sign of the times and a harbinger of bad, bad things to come. Older folks can remember pre-1965 coins really were made of silver. Younger folks may have seen some of these coins in display cases in a collection somewhere. Nowadays, these coins trade at many times face value purely on the basis of their silver content. Obviously, Uncle Sam would bankrupt himself trying to mint these things at current values. Something had to give. In 1965, the sandwich coins came into production, and are worth a small fraction of face value. Then the zinc penny came along in 1983, with only a thin clad of copper on the outer surface so that it appears as it has since the early 1900's. But it's not the same. Now, the newer coins are basically little more than well polished base metals, worth next to nothing in-and-of-themselves. The only coin in production which still has any value purely from its metal content is the nickel, which is mostly nickel with a little copper. It's the last of a dying breed. Which brings me to my point. As the money of the republic goes, so goes the republic. The Roman Empire similarly debased its currency, mixing lead with the gold in its coins as the empire waned. While the empire was expanding, it absorbed the wealth of the conquered, and things were okay. The coinage remained mostly unadulterated as gold poured in in tribute. But towards the end, finances were stretched. The people had become accustomed to a certain standard of living, extracting the wealth of the conquered, but there were fewer and fewer to conquer, and more and more citizens. Taxes rose, incomes waned, and the empire grew shaky. It showed in the coinage. We all know how the story ends. Another telling trend I've observed in American money is the change of the images printed on the faces of the coins. In the old days, there were pictures of lady liberty (the liberty dollar), buffalo (the buffalo nickel) and Indians (the buffalo nickel and Indian head penny). Now, its all decapitated presidents and patriotic symbols. Eagles, Monticello, etc. It's as if to say, "This money has value because the US Government says so, and you'd better believe it buster. We're America, Dammit!" Its as if to say that substance (gold, copper, silver) can be replaced with, well, feelings and authority. It is very nearly a written confession of exactly what is going on. The Constitution of our republic specifically states that the coinage shall be of gold and silver. Once upon a time, it was. Now, it clearly is not, and has not been for some time. The transition has been slow, so few have noticed. It is difficult to take note of changes that occur over the time-span of a lifetime, especially with today's rapidly changing technologies and pace of life. But gold and silver are not the "barbarous relics" of John Maynard Keynes. They mean something. We are seeing it in the financial markets today. The Keynesians thought they were smarter than the Founders. They were not. The currency is in trouble. The Republic is in trouble. On the brighter side, you can still get nickels at face value. In fact, if you look hard, you can still find the old silver (pre-1965) nickels in the circulating money supply. I've been collecting nickels a bit at a time, preparing for the inevitable day that they will be discontinued and replaced with arcade-token Monopoly money. The penny is due for a "facelift" (read "debasing") beginning next year. Not even worth zinc. Pathetic. You can also find real copper pennies in the circulating money supply (pre-1983). I'm collecting those too. When the inflation finally gets bad enough, their value should unhinge from face value and float with the commodity prices, just as old silver quarters and dimes have. That is real savings that can't be eroded by the government printing presses. Hard times are coming. Collecting the last of the "commodity money" (money whose value is based on the value of its actual substance) in circulation is a pretty small thing. It would take an awful lot of nickels to save up much, but every little thing you can do, you probably should. So that's the practical suggestion for today: collect your nickels and pre-1983 pennies. Its free money, and protection from inflation. You never know when you'll need it. For more information on this phenomenon (and where I got this whole idea), go here. And here.