By DAVID MOON, Moon Capital Management
was trying to explain to a couple of seven-year-olds why a $5 bill is worth more
than a $1 bill, and why each of them is worth more than an orange $500 Monopoly
bill. Even though the children have exceptional intelligence (they are my
progeny, after all), I struggled with a successful
There is a concept of fiat, which says that money has
value simply because the government says it has value. The word fiat comes from
the Latin term 'fiat lux,' which is used in the first chapter of the book of
Genesis and typically translated into English as 'let there be
The little green George Washington portrait in your
pocket will buy almost a third of a gallon of gas simply because someone in
said, 'Let there be money.'
The government starts with almost nothing ' pieces of
paper ' and creates a thing that we honor as being representative of the value
of our work and any other asset we possess.
was coming to grips with that, even if I wasn't doing a good job explaining it
Then I ran across some statistics about coinage, and I
was back at square one.
Unlike paper money, where the government takes an almost
worthless thing and declares it to be worth much more than the paper, with coins
it's the exact opposite. Government performs its more traditional task, where it
takes something of value and, through the magic of bureaucracy, manages to waste
some of that value.
Look at the meager penny, for example. The government
starts with zinc and a little bit of copper. It puts those metals through a
process, stamps a picture of Abe Lincoln on it and, voila! a penny is
It costs 1.67 cents to make that penny.
The nickel is even worse. A nickel costs almost a dime to
make. The government's profit margin on this product is a negative 97.5
That jar on your dresser is full of tiny round versions
of $200 hammers and $300 toilet seats.
Since the government says a penny and nickel are only
worth 1/100 and 1/20 of a dollar, that's all you can get for them at Wal-Mart.
Lest the arbitrager in you begin to see an opportunity,
the U.S. Mint makes it illegal to melt pennies or nickels. Not only can't you
melt these coins, you can only legally carry $5 worth of these coins out of the
country. Uncle Sam is concerned about offshore penny
Violators are subject to $10,000 in fines and up to five
years in prison. And they forfeit their melted or smuggled
Archeologists and historians debate who issued the first
coin. It might have been the trite, a Lydian coin made of a natural mixture of
gold and silver. These were produced around 600 BC in an area that is now part
of Turkey. Coins were used in
Pakistan (silver) and
China (bronze) about the same
don't have good records, I'm willing to bet that these early civilizations
didn't consume value to make these first coins. Sticking with the barter system
might have been better economics.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).