Pennies by the quarter-ton

Gresham's Law now has small business backing.

There's a fair bit of activity on eBay buying and selling 95% copper cents, and the coin sorters to distinguish them from the newer zinc variety.  Why the interest, you might ask? It's the copper content of the cents that's interesting.  These high-copper cents, minted for part of 1982 and most of the years before, are now worth more than twice their face value based solely on the copper content.

Basically, each one of these cents has more than two cents' worth of copper in them.

This mismatch has come about from a decades-long, systematic increase in the money supply. A dollar today only buys 8% of what it bought eighty years ago. Since just the turn of this century, it already buys 22% less. Since there are more dollars chasing the same (or nearly the same) amount of goods, prices rise on average to meet the increased money supply. The prices of everything are affected, including copper.

The composition of the cent changed in 1982 from 95% copper to 5% tin/zinc, to 97.5% zinc, 2.5% copper. Zinc is a cheaper metal, but a cent is a cent as far as the cashier is concerned — and as far as the Mint is concerned. Over time, it makes less and less sense to spend the high-copper-content ones. They're kept instead, since at some point it makes more sense to keep them for their copper.

For the time being, though, would-be smelters would break the law if they extracted the copper from cents. They are also forbidden from exporting anything but trivial quantities to countries where it wouldn't be illegal. (A similar ban was enacted after silver was removed from dimes, quarters, and half dollars. The ban has since been lifted.) What is still legal is shipping them within the country and storing them as just a large pile of cash.

Enter eBay and others. You can buy pre-sorted cents, by the pound, in quantity. Not just the older wheat cents (pre-1959) but the more modern Lincoln Memorial cents (1959-1982). Circulated wheat cents are more sought-after by coin collectors, so they go for a premium anyway. The newer ones, though, are still widely circulated, but they're getting less so.

I just saw an auction for 500 pounds of 1959-1982 cents go for $1,200, with free shipping. This price is between the face value of the money and the market price of the copper in the cents. The face value of the lot is

500 pounds * 454 grams per pound * $0.01 per 3.11 grams = $729.90

The value of the copper in these cents is

500 pounds * $3.91 per pound of copper * 95% copper content of cents = $1,857.25

The reason for buying is appreciation of the underlying commodity in dollars. (I suppose, also, that the coins themselves become more collectible as time goes on as well.) At some point in the future it will pay to sell these. It may even pay to melt them (assuming the ban is lifted after the “easy money” is no longer so easy). More to the point, though, it's trading something that holds value with something that is clearly losing value.

Storing these old things is a cost that some people obviously are willing to bear. People who pulled out their silver dimes are pretty happy now, I'd think; the reasoning for pulling out the copper cents is the same. Cents are bulkier relative to their value than silver dimes, and far bulkier than gold coins, but the cents are what people can get their hands on at a discount to their true value, now.

I was born too late to see the silver money go out of circulation, but we all have front-row seats to watch the copper cent go away. And we can watch it on eBay!