A Symptom of a Broken Monetary System

If you’ve ever tossed a penny into a jar or left it on the counter because it wasn’t worth the hassle, you’re not alone. The humble penny, once a staple of American commerce, has become little more than a relic—an annoyance rather than a functional piece of currency. In a thought-provoking article titled "Paper Money and the Fed Have Destroyed the Penny (And the Rest of Our Money)", Jacob Hornberger argues that the penny’s decline is not just a quirky footnote in economic history but a glaring symptom of a much deeper problem: the erosion of our money’s value by paper currency and the Federal Reserve.

The Penny’s Fall from Grace

Hornberger kicks off with a simple observation—today, the penny is practically useless. It costs more to produce (about 2.72 cents per penny in 2023, according to the U.S. Mint) than it’s worth, and few people bother using it in transactions. Vending machines reject it, cashiers sigh at it, and it collects dust in drawers across the nation. But it wasn’t always this way. A century ago, a penny could buy a piece of candy or a newspaper. So, what happened?

The culprit, Hornberger contends, is inflation—a slow, relentless force driven by the Federal Reserve’s control over our fiat money supply. Since the Fed’s creation in 1913, the U.S. dollar has lost over 96% of its purchasing power. A penny today buys nothing because a dollar today buys so little compared to what it once did. This isn’t a natural evolution of economics; it’s the result of a deliberate system that prioritizes paper money over sound money.

Fiat Money and the Fed’s Role

At the heart of Hornberger’s argument is the shift from a gold-backed currency to fiat money—currency that derives its value solely from government decree rather than intrinsic worth. Before the Fed and the abandonment of the gold standard (fully severed in 1971 under Nixon), the dollar was tied to gold, which imposed a natural limit on how much money could be printed. Gold doesn’t grow on trees, and neither could the money supply. This kept inflation in check and preserved the purchasing power of even the smallest denominations, like the penny.

With fiat money, however, the Fed can print dollars at will, flooding the economy with currency that dilutes the value of every dollar in circulation. Hornberger points out that this isn’t an accident—it’s a feature of the system. The Fed’s policies, combined with government spending, have turned money into a tool for political agendas rather than a stable store of value. The penny’s obsolescence is just the most visible casualty; the dime, the quarter, and even the dollar itself are shadows of their former selves.

A Broader Destruction

Hornberger doesn’t stop at the penny. He sees its demise as a microcosm of what’s happened to all our money. Inflation doesn’t just make small change irrelevant—it erodes savings, wages, and economic stability. The middle class feels it most acutely: prices rise faster than incomes, and the purchasing power of their hard-earned dollars shrinks year after year. Meanwhile, the Fed’s low-interest-rate policies and money-printing binges disproportionately benefit Wall Street and government cronies, leaving the average American to pick up the tab through higher costs of living.

Consider this: in 1965, a gallon of gas cost about 31 cents. Today, it’s over $3 in most places—a tenfold increase. Sure, wages have risen too, but not nearly at the same pace as inflation. The penny’s worthlessness mirrors this broader trend: our money doesn’t stretch like it used to because it’s been systematically devalued.

A Call for Sound Money

Hornberger’s piece isn’t just a lament—it’s a call to action. He advocates a return to sound money, like gold and silver, which can’t be manipulated by central banks or governments. A currency backed by something tangible would force fiscal discipline, curb inflation, and restore trust in our monetary system. The penny might never reclaim its former glory, but a sound money system could at least halt the relentless decline of the dollar’s value.

Critics might argue that abandoning fiat money is impractical in a modern, globalized economy. How would we manage complex financial systems without the flexibility of a central bank? Hornberger would likely counter that the current system’s “flexibility” is precisely what’s gotten us into this mess—decades of unchecked money printing have left us with a currency that’s losing relevance, starting with the penny.