The price of the zinc required to mint pennies has been steadily increasing; according to a recent article in the New Yorker, the cost of producing a penny is now 1.7 cents — it costs nearly two pennies to make one. Producing a coin at a higher cost than the value of the coin itself is known as "negative seigniorage." This phenomenon has led many to question the continued existence of the penny and suggest it be abolished. Understanding negative seigniorage in economic terms will lead to an opposite conclusion: hundred dollar bills should be done away with.
Why is the price of zinc going up?
it is the falling value of dollars themselves that is causing the price to go up. The greater the supply of a good, the less value each individual unit of that good will have. This is known as the law of marginal utility. Applying this law to money leads to the conclusion that when the mint prints more dollars, the value of existing dollars will decrease, and thus it will take more dollars to purchase metals and other goods.
The government is able to "print" money both electronically by manipulating the interest rate and through the physical creation of more dollars and cents.Any increase in the money supply, however minute, dilutes the purchasing power of existing dollars and thus throws off economic calculation. Curtailing the power of the government to print money means creating a more sound, prosperous economy.
What makes coins and other hard commodities desirable as currency is that they cannot simply be printed. Gold, copper, and silver must be dug out of the ground, so the government is limited in the amount that it can spend and, therefore, inflate.
Government fiat does not raise the standard of living; production on the market does. In industries where there is innovation and more production, prices fall.
In a world without government intervention in the money supply and economy, prices would fall to the point that the penny would take on a new relevance. Instead of decrying the penny, economists should recognize its potential to combat government inflation and advocate a return to an even harder currency. Coins may be expensive for the government to make, but this ensures that our money retains some value, regardless of what the government does