Tuesday, February 13, 2007

A Diller, A Dollar

A Dollar doesn’t buy as much as it used to. If you had put a Dollar bill in a drawer in 1967 and then decided to spend it today, it would be worth less than 17% of its original value. To put it another way, today’s equivalent of a Dollar spent in 1967 is almost $6. That’s inflation. No wonder they don’t have penny candy anymore and dime stores have become Dollar stores.

But money doesn’t grow on trees. That’s certainly true for coins, and it is largely true even for our paper money, which consists of 75% cotton and 25% linen (see here). The point is that it costs money to make money. And I’m not talking about investments here. I mean that it costs money to make the physical objects that we consider money.

A Dollar bill costs about 4.2 Cents to create. The average Dollar bill lasts about 18-22 months. Sure, you see much older bills, but many others only last a few months. Due to the bill’s short life span, its cost is relatively high compared to its value. Apparently this ratio is much worse than it was 40 years ago.

Coins, such as the Sacagawea Dollar, have a substantially longer life span than paper money. In 2000 the GAO estimated that using a Dollar coin instead of a Dollar bill would save about $522.2 million annually (a pittance to the federal government). But we never did that. Just like the Eisenhower Dollar and the Susan B. Anthony Dollar, the Sacagawea Dollar was introduced with no plan to scrap the Dollar bill. Not only did the introduction of all of these coins cost the taxpayers more; the coins merely introduced more complications and inconvenience for shoppers and merchants alike.

Why didn’t we get rid of the Dollar bill? Because it is the most widely understood and accepted money instrument in the entire world. Even though it’s worth only 17¢ in 1967 value, the Dollar bill holds a deep place not only in the psyche of Americans, but in the psyche of people worldwide. Other countries have scrapped their smaller denomination paper money, but Americans simply won’t hear of it. It doesn’t matter if it costs more.

Apparently we have not learned our lesson. On Thursday the U.S. Mint will release yet another Dollar coin (see here). This one will be the same size and use the same components as the Sacagawea Dollar, but it will feature a U.S. President. Starting with George Washington, the Mint will release a new design every three months for the next decade. They are modeling this on the successful 50 State Quarters Program. The main thrust seems to be promotion of coin collecting.

Is this a valid use of taxpayer funds? I can see arguments both ways on that. One thing is for sure; it’s a much better use than some of the other crap for which we spend taxpayer Dollars.


y-intercept said...

You can use the site Where's George to track money around the US. If ever you see Where's George written on it, you need to stop what you are doing and run to the nearest computer and record the event. It uses the serial number on the bill ... so it doesn't work with coins.

Scott Hinrichs said...

How cool.

c andersen said...

I noticed, while riding trax last month, (Utah's latest mass transit upgrade), that I received change in Sacagaweas. I was pleasantly surprised! 'What a cool idea', I said aloud. 'How convenient'.

I was in Argentina in 1992-94, and saw people handing over bundles of paper bills for a loaf of bread due to massive inflation. It reminded me of those economic stories about wheelbarrows of money in Germany. When currency becomes burdensome, it no longer serves its purpose.

Anyway, I completely agree that the dollar bill needs to be abolished and upgraded to coin, as they are now worth what a quarter was when I was a kid anyway.