excerpt from Chris Casey, The State Grants No Quarter to Freedom, Ludwig von Mises Institute (Feb. 25, 2010):
Historically, the quarter, half, single and double eagles represented the highest values of US coinage (equivalent in nominal terms to $2.50, $5, $10, and $20). Debasing these coins, but not the lower denominations (the large cent, or penny, through the dollar coin), creates an arbitrage opportunity as the eagles would be exchanged for lower denominations. That is, the overall metallic value of eagles would be exchanged for the higher overall metallic value of lower-denominated coins.
Faced with such obstacles, the US Mint pursued a different tactic: in April 1933, Presidential Executive Order 6102 effectively eliminated the entire class of eagles. Rather than circumventing or solving the dilemma, the state simply abolished it. Subsequently, the US Mint was free to debase lower-value coinage en masse.
And so it began. Like all effective state intervention, the origins of debasement were at first mild and seemingly innocuous. Given the nickel’s relatively large mass but low value (in tale), initial debasement targeted this coin. In 1866, nickels were debased from 90% silver to a mix of 75% copper and 25% nickel. All other coins retained their relatively standard 90% silver component.
En masse debasement occurred with the Coinage Act of 1965, which eliminated silver from the circulating dimes and quarter dollars and diminished the silver content of the half dollar from 90% to 40%. From then on, all dimes and quarters consisted of 75% copper and 25% nickel.
Consider this example of how little the value of the new metallurgical content compared with the stated denomination of the coin: After 1965, both the nickel and the dime consisted of the same relative proportion of base metals. As the dime’s mass is exactly one half that of the nickel, despite having twice the stated value, the underlying value of its base metals cannot exceed 25% of a its stated value of 10 cents. Otherwise, an arbitrage opportunity would develop leading to the disappearance of nickels. Simply put, US coinage was debased by over 75%. Rulers from antiquity, laboring to achieve debasement by clipping coins, would be envious.
n.12: …In 2007, due to the rising price of copper and zinc, the United States banned the melting and mass exportation of pennies and nickels.
Source: Chris Casey, The State Grants No Quarter to Freedom, Ludwig von Mises Institute (Feb. 25, 2010), http://mises.org/daily/4109.
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