Debasing The Currency - Death of the Penny

We all know that inflation--at least under our fiat currency--is the result of printing too much money. Governments like inflation because it erodes its debts (assuming that the inflation is greater than the interest earned on government bonds). Unfortunately, it also erodes the purchasing power of citizens and diminishes the value of their savings. Thus, it is chilling that "After 232 years, the US penny is finally dead." And what killed it? According to the cited article:

    According to the Treasury Department, the causes were irrelevance and high cost.

    No longer could a penny buy anything — not even penny candy. And with the expense of minting each coin exceeding three cents, the penny's fate was sealed by simple economics.

But that is just a symptom or consequence of the real reason. The real reason the penny is dead is because the government and the Federal Reserve has, through inflation, so devalued and debased our currency that an individual penny has no purchasing power. In this way, we are much like Rome, which debased its primary currency--the silver denarius--to such an extent that eventually became nothing but junk metal. 

    As one writer explains the process:

    This policy involved debasing the value of the standard Roman silver coin, the denarius, by infusing it with cheap metals such as copper, and “clipping” both gold and silver coins, or in other words, reducing the size of them. The excess precious metal obtained from clipping and debasing coins was then used to create more coins, and with these newly minted coins the Roman State covered its debts and expenses and fattened the pockets of statesmen and political insiders. 

    The modern equivalent of this policy is the expansion of the supply of paper, or digital, money. However, whether one debases and clips coins in order to create more coins, prints more paper money, or adds digits to an account held with a central bank, the result is the same – monetary inflation. The quantity of money is increased, and all other things equal, this leads to price inflation and a rise in the cost of living. 

    During a monetary inflation the newly created money does not enter the economy in a uniform manner. It tends to first enter the economy through the hands of the politically connected. As these people and institutions are able to spend the newly created money before the monetary inflation drives up prices, they benefit from the inflation. Or as Jesus Huerta de Soto writes: 

    “The process [of monetary inflation] gives rise to a redistribution of income in favor of those who first received the new injections or doses of monetary units, to the detriment of the rest of society, who find that with the same monetary income, the prices of goods and services begin to go up.”

    Jesus Huerta de Soto, Money, Bank Credit, and Economic Cycles   

Ironically enough, the Federal Reserve even publishes teaching materials for teachers on "Inflation and the Fall of the Roman Empire."

More:

• "How Excessive Government Killed Ancient Rome" by Bruce Bartlett, Cato Institute.
• "Debasement and the decline of Rome" by Kevin Butcher.
• "Inflation and the Fall of the Roman Empire," a lecture by Joseph R. Peden.  (You can watch a video of this lecture here).
• "The Rise and Fall of Sound Money in Ancient Rome" by Dominic Frisby.