Melt a penny, risk time in the slammer

Recently I stumbled across the news that’s it’s illegal to melt down nickels and pennies. In fact, it’s been a crime for half a decade now.

Had this law been in place back when I spent my summers working at the family steel business, I’d have been counted among the nation’s scofflaws.

More than the occasional lunch break was whiled away taking a cutting torch to various metal objects, including many a penny, watching as the heat turned coins first red, then yellow, then white. 

Soon they would bubble and boil, ball up and, if I did it long enough, disappear completely. All that would be left was usually a smudge of yellow where the penny had been.

However, when the US Mint implemented regulations in December 2006 prohibiting the melting of pennies and nickels, it wasn’t to keep bored youth from cheap entertainment. Instead, it was purportedly to prevent individuals from melting the coins en masse in order to realize their copper value.

In addition, the Mint’s rules also prohibited the unlicensed exportation of the coins, with the exception that travelers can take up to $5 in pennies and nickels out of the country.

To show that the Mint meant business, penalties of up to a fine of $10,000, five years’ imprisonment, or both, were mandated.

Seems rather draconian, particularly given that Mint officials admitted at the time there had been no specific reports of people melting coins for their metal.

The real culprit is the high price of copper and an economic principle known as Gresham’s Law.

Nickels minted between 1946 and 2011 are 75 percent copper and pennies minted between 1909 and 1982 are composed of 95 percent copper, which means that both coins have a higher value as metal than as legal tender, thanks to rising copper prices.

As a result, the Mint is afraid that individuals will melt down their pennies and nickels, rather than use them in commerce.

Which is exactly what Gresham’s Law tells us is a rational human response to rising copper prices: “When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.”

In simpler terms, bad money drives out good money.

James E. Miller, writing at the Mises Blog, says for proof that the copper-laden nickels and pennies may disappear soon, consider how few pre-1965 Roosevelt dimes or Washington quarters you see in circulation today.

“Both are composed of 90 percent silver and are worth far more for their metal content than they are as legal tender,” he writes.

Miller adds that anyone looking to make a small investment might want to hold on to their nickels and pre-1983 pennies.