Elon Musk, the billionaire entrepreneur and visionary behind groundbreaking innovations like Tesla, SpaceX, and Neuralink, has recently sparked debate by advocating for the elimination of the U.S. penny. While he is not the first person to advocate for this change, Musk's recent remarks have reignited discussions about the coin's practicality in today's economy. While the penny's future may seem inconsequential at first glance, this debate holds meaningful implications for policymakers, businesses, and individuals alike.
The Case Against the Penny
The argument for getting rid of the penny is not new.
Economists, policymakers, and financial experts have long debated its
practicality. The last time I can remember using a penny was in the
convenience store with a 'give a penny, take a penny' dish. Here why Musk
will be the ultimate impetus in removing the penny (and maybe other coins) from
our daily lives.
The Cost of Producing Pennies
One of the most compelling reasons to phase out the penny is its production cost, which far exceeds its face value. According to the U.S. Mint, it costs approximately 3.7 cents to manufacture a single penny, meaning taxpayers effectively lose money with every coin minted. The U.S. government spends hundreds of millions of dollars producing pennies that are hardly used in daily transactions. In 2023 alone, the U.S. government spent approximately $179 million producing pennies. Talk about DOGE! This means that taxpayers are effectively losing money every time a new penny is minted.
Musk, who has built his career on optimizing efficiency, whether in electric vehicles, space travel, or AI, sees this as an obvious waste of resources. And you know what, he's right! This is about a new Government of common sense. From a business perspective, it makes little sense to continue producing an item that costs more than it's worth.
Economic Inefficiency in Daily Transactions
Aside from production costs, pennies slow down transactions. They slow down cash payments, increase transaction times, and often end up unused, sitting in jars or being discarded. Businesses lose valuable time counting, sorting, and handling these low-value coins, while consumers find them cumbersome to carry and use.
By removing a nearly worthless denomination, cash transactions could move faster, and yield time savings for businesses and individuals alike - time that could be better spent on activities generating real value. We often encourage clients to think similarly about optimizing their own financial habits: reducing inefficiencies and focusing resources where they make the most impact.
Inflation and the Penny's Declining Relevance
When the penny was first introduced in 1793, it had significant purchasing power. Today, it buys almost nothing. Inflation has eroded the penny's value to the point where many people refuse to pick one up off the ground. In an economy increasingly driven by digital transactions, the role of physical coins is diminishing. There's a reason that Dollar Tree hardly has anything that costs a dollar anymore. Payment methods such as credit cards, digital wallets, and peer-to-peer apps like Venmo and Zelle are far more convenient and widely used.
Musk's Influence and Public Reation
Why is Elon Musk the leader to make this change? For one, Elon Musk's opinions carry weight, socially and politically. As the CEO of Tesla, SpaceX, Neuralink, and other ventures, he has a massive following. When he speaks out on an issue, even one as seemingly minor as eliminating the penny, people pay attention.
Musk has used social media, particularly X (formerly Twitter), to express his thoughts on various economic and financial topics. His influence could help push policymakers to seriously consider eliminating the penny, especially if he continues to highlight its inefficiency.
However, not everyone agrees with Musk. Some Americans feel a sentimental attachment to the penny, particularly because of its historical significance and association with President Abraham Lincoln. Others worry that eliminating the penny could lead to retailers rounding prices up rather than down, effectively raising costs for consumers.
What If the Penny Disappears?
If the penny were retired, several likely outcomes would follow:
- Rounded Transactions: Prices would round to the nearest five cents. Research from Canada, which eliminated its penny in 2013, suggests rounding practices tend to balance out over time without significantly impacting consumers.
- Cost Savings: The U.S. government could redirect funds currently spent on penny production toward higher-priority initiatives.
- Efficiency Gains: Businesses and consumers would experience faster, smoother transactions.
The Path Forward
Elon Musk's call to eliminate the penny is rooted in logic, efficiency, and financial pragmatism. While the penny once served a meaningful purpose, inflation and technological progress have made it largely irrelevant. Whether policymakers will act on this issue remains to be seen, but Musk's influence has reignited the conversation about whether it's time for the penny to become a thing of the past.
The fate of the penny offers valuable lessons about efficiency, adaptability, and resource allocation. Just as governments must periodically evaluate the utility of their expenditures, individuals and businesses should regularly reassess their financial plans to ensure they remain aligned with evolving goals and circumstances. Contact us today to speak with a Private CFO® who can help optimize your financial future!
Sources:
Yahoo Finance - Elon Musk takes on his biggest challenge yet
JM Bullion - Cost of Producing a Penny