Value of metal vs. face value of coins

Supposedly, one of the reasons U.S. half dollar coins don’t see much circulation these days is because of silver speculators back in the 60s (or at least, from what I can find online) hording them, and thus, the public adapting to their absence from everyday commerce.

Supposedly, the value of the silver content of the coins was worth more than the coins’ face value. The question I have, then, is this: How is it even possible? If a nation’s money is made out of silver, and the value of that silver goes up, shouldn’t that mean the purchasing power goes up along with the value of that silver?

Only a small fraction of a modern nation’s money is made of physical money and only a small fraction of this is in coins.

Half dollars were never used very much even before the silver market went haywire. Then came the Kennedy half dollar and they were snapped up as momentos. I don’t know if they were ever silver. Canada actually has an official 50 cent coin but I’m not sure I have ever (living here for 47 years) seen one in actual circulation. I have no idea why in either case.

The purchasing power of a coin is always the face value. Even if it is worth more as scrap (and there are often laws about scrapping current coinage) a half dollar will only ever buy you 50 cents worth of goods.

No, the purpose of money is to standardize and guarantee commerce. A dollar coin is worth a dollar - if that ceases to be true than I need to change prices daily, and charge different prices for paper currency and CC. If the metal value of a coin is worth more than its currency value, as you can imagine, people will pull it from circulation, melt it down, and sell the metal for a profit.

It also means someone dumping a lot of silver on the market or cornering the silver market can cause havoc in the economy.

The '64 Kennedy was 90% silver. The 65-70 coins were 40% silver. A lot of these coins are being sold in bulk to China where they’re melted down for the silver content, which I assume is for electronics manufacturing.

Screw China. All the silver in the US that’s getting scrapped out is going to US refineries. What they do with it is up to the global market.

But 50¢ worth of goods is not a consistent measure anyway, as what you can buy with 50¢ has changed over time. If that 50¢ is x grams of silver, and x grams of silver is now worth 75¢, why doesn’t this trigger some sort of price deflation? If the entirety of our money was precious metal backed, would it have in that instance?

I think you’re confused by the difference between a silver standard for monetary value and money which just happens to contain silver.

In the Nineteenth Century the American dollar was defined as X ounces of silver (or Y ounces of gold). Under those conditions you are correct, if silver is worth more (as measured by purchasing power, since its value as measured by dollars is fixed) then the dollar is worth more.

Since 1933 the dollar is no longer defined in terms of gold or silver. But, long after that date coins continued to contain silver. There was no particular reason; it just happened to be the metal out of which they were made. When the price of silver rose so that the coins were worth more as scrap than as coins, most such coins were melted down.

But, there are other reasons why coins don’t circulate, as we’ve seen from the limited circulation of dollar coins.

Yes. If the all money in circulation is precious metal then you will see deflation as the economy grows and the supply of metal remains fixed. Deflation is generally seen as a bad thing since it encourages people to hoard money (in the hope it will be worth more in the future) instead of spending it to keep the economy running.

However, if only some coins are worth more as metal, then Gresham’s Law kicks in: “Bad money drives out good.” People will hoard the precious metal currency (or melt it down) and carry out transactions in the fiat currency instead.

To expand on this, based on current silver prices my local coin dealer would probably pay me about five bucks for a '64 Kennedy Half Dollar based solely on the silver content (i.e., even if the coin has no value to a collector). But as far as the cashier at the deli located next door to the coin dealer is concerned, it’s just a fifty cent coin.

The US penny and nickel are both worth more in metal value than their face value and I don’t see anyone taking my coins for anything other than face value.

The OP doesn’t understand the concept of “money”. Precious metals are a crappy way of defining money and the less we associate the two the better we are.

It should be pointed out that while you might be able to convince the deli manager to accept the silver half dollar at greater than face value (say, take it in exchange for a 5-dollar sandwich), that transaction would be barter, not monetary.

Yes and no. They are if you only spend them once, but they can stay in circulation for 50 years, or even longer, and be spent countless times before they are so worn they have to be removed. Paper money lasts at the most, 10 years. Very cheap to make, relative to its face value, but can’t be spent as many times. The government would love people to use dollar coins for this reason, and is always trying to encourage it (eg, the dollar coins in postage stamp machines, before the machines started taking debit cards).

US coins were silver until 1964, with silver content being reduced gradually until 1969?, I think.
The Kennedy half-dollar was introduced in 1964. Only the 1964 Kennedy half-dollars are silver.

The US Mint says it is illegal to melt US coins.
This regulation apparently dates from 1982, the last year pennies were solid copper and the year the copper in a penny became worth more than $0.01.

Pennies haven’t been solid copper since 1856. They started making them out of bronze (88% copper, 12% tin) then. They also became a lot smaller. Pennies used to be almost the size of a half dollar. IIRC, this is qwhen the gov’t stopped making the half-cent.

In 1982, pennies became bronze over a zinc core, and the government didn’t want people melting down the previous ones that were solid bronze (it was bad enough people had pulled all the pennies from before 1959 from circulation just because there was a design change), and that’s why this was passed.

Isn’t this a logical fallacy? The fact that a penny is spent 100,000 times over its 50-year lifespan seems rather to mean that each and every time it was spent, the person spending it lost an amount equivalent to the surplus value of its metal. Arguably the loss is meaningless, because you can easily trade dollar bills for as many pennies as you wish, thereby recouping any loss you might have incurred, but it’s still there each and every time you spend a penny.

No, the composition of dimes and quarters was abruptly changed to eliminate all silver beginning with 1965 mintages. As has been pointed out, the Kennedy halves continued to contain some silver, but they were very rare in circulation so they didn’t count. Half-dollars, like silver dollars, were never popular.

My point was that the government doesn’t lose money minting coins that are worth more in composition than their face value when they will stay in circulation for many, many decades. If they were just spent once, then melted down and reminted, yes, the gov’t would lose money on the face value (not even counting the cost of manufacturing the coins), but the more they stay in circulation, the less they cost per transaction. Speaking solely of the gov’t’s cost.