Dive into the quirky world of pennies and the surprising inefficiencies of their production. It costs more to make a penny than it’s worth, leading to a massive annual loss for taxpayers. With nearly 130 billion pennies sitting idle, the discussion leans toward innovative solutions like a buy-back system. Also, explore the amusing economic comparison between grass seed and bread prices, revealing unexpected factors that influence costs. Get ready for some laughs as complex economics meets everyday currency debates!
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insights INSIGHT
Fundamental Make-or-Buy Concept
The make-or-buy decision applies broadly to families, businesses, and nations and influences efficiency and cost-effectiveness.
Adam Smith emphasized it as a maxim for prudent management, now central in business education.
insights INSIGHT
The True Cost of Pennies
Producing a penny costs 2.72 cents, causing a taxpayer loss of about 1.7 cents per coin.
Most pennies lie idle in jars and drawers, making penny production economically wasteful.
insights INSIGHT
Environmental and Practical Costs
Penny production causes environmental harm from mining zinc and copper with little return.
Other countries like Canada have eliminated pennies without negative effects on transactions.
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Published in 1776, 'The Wealth of Nations' is Adam Smith's magnum opus that laid the groundwork for modern economics. The book critiques mercantilist economic theories and introduces the concept of the 'invisible hand,' which describes how individual self-interest leads to societal benefit. It emphasizes the division of labor, the accumulation of capital, and the importance of free markets. Smith argues that a nation's wealth is not measured by its gold and silver reserves but by the stream of goods and services it produces. The book also outlines the core functions of government, such as maintaining defense, enforcing civil law, and promoting education, while advocating for limited government intervention in market activities.
The make-or-buy decision is a fundamental aspect of economics that applies to businesses, households, and nations, with the U.S. penny providing a fascinating case study in economic inefficiency.
• It costs 2.72 cents to manufacture one penny, representing a loss of 1.7 cents per coin to taxpayers • The U.S. Treasury loses between $85-120 million annually due to penny production costs • There are approximately 130 billion pennies in existence, but only 5-10% actively circulate • Most pennies end up sitting idle in jars, drawers, and coin collections after minimal use • Arguments against pennies include production costs, inflation reducing value, transaction inefficiency, and environmental impact • Canada successfully eliminated the penny in 2012, rounding cash transactions to the nearest five cents • A potential alternative: buying back existing pennies at a price below manufacturing cost • The Federal Reserve could implement a system paying $1.50 for 100 pennies, still saving over the $2.72 production cost • This system would utilize the billions of idle pennies while maintaining the existing distribution infrastructure
The Answer Is Transaction Costs 
