I miss penny candy.
The .90, .95, .99, and .999 pricing gimmick is used because it works.
The majority of people encountering gasoline for $2.299 per gallon think of it as “two dollars twenty nine cents” a gallon, not “two dollars thirty cents” a gallon. You may be smarter than that, but your fellow consumers are not.
Hence the “extra”; it’s free money to the merchant while the consumer is ignoring the fact he / she is paying it. Not only this time but every time.
To put things in historical perspective, we got rid of thehalf penny in 1857, which has value of about 14 cents today. So rounding to the nearest dime is entirely reasonable. I don’t think that there would ever be a time I would miss the extra 5 cents I’d lose in change.
Decimal shifts are necessary only in extreme cases. The French franc and German mark were each worth less than a dollar when they switched to the Euro. (The Kuwaiti and Bahrain dinars are the only currency units worth much more than the dollar.) A Thai baht is worth only 3 U.S. cents, but Thai pricing numerals are typical smaller than U.S.'s We pay ฿24.9 for a liter of gasoline; you pay $2.299 per gallon.
But I came here to mention that your anecdote exaggerates American inflation. According to the CPI calculator at Measuringworth (which has a scholarly apolitical agenda) the CPI’s in 1888 and 2016 were 9.22 and 240.01. That’s 26-fold inflation, not 500-fold.
And the last three decades of the 19th centuries were a period of deflation. Inflationary peaks of the CPI include 13.4 in 1778, 15.5 in 1813, 15.8 in 1865, and 20.0 in 1920.
Ah! I see the logic now. I wasn’t doubting the effect, and of course if the alternative is pricing things to .X9, then .X99 is indeed an extra 9 mills.
It’s probably worse than that–I suspect the thought process is more like “two-twenty-something” vs. “two-thirty-something”, making the perceived difference ten cents. Not to mention $1.99 vs. $2.00 being “a dollar something” vs. “two bucks”.
There used to be one in my neck of the woods that priced its fuel in whole cents per gallon. It’s been out of business for quite some time now. In fact I think it burned down quite some time ago.
You say it works. But how can anyone know if it works as supposed or not? There’s no control group because it’s done universally. There’s no way to falsify the hypothesis. Look at it this way—now that everyone does it every time, in what way is that different from if it were never done at all? If such a difference exists, how could it be measured? What would even be the definition of “it works” in this case? I suspect that it continues just because everybody is so used to it all the time that it would feel strange if it weren’t done.
Going back to the original question:
I think it’s based on a mistaken apprehension/assumption. Currency isn’t inherently valuable any more. When your coins are made of valuable metal, cutting them up might make sense. But none of the United States money has had inherent value since some time in the last century.
There have been times in the past, when an American cent was enough to buy TWO pieces of candy. If someone only wanted one, they had a choice between refusing to take what they paid for, or paying double the price. We didn't make half-pennies in order to deal with that, so there's no reason to stop having pennies now, just because the price of candy has gone up.
And then there’s things like taxes and interest. A penny is nearly meaningless by itself, but they add up rather quickly to “real money” when more than one purchase or payment is involved.
At this point, I suspect we are moving so rapidly to the end of the need for ANY cash at all, and going completely “virtual” with money.
Perhaps the biggest impediment to doing away with the penny, is politics. In order to make that decision, the leadership has to openly declare that the economy is so hopelessly inflated, that a complete, forced restructuring of prices has to be done. It’s fine for individual vendors to decide to have “take a penny, leave a penny” trays and the like, but as soon as you formalize something by national law, everything changes. We go from allowing people to over or undercharge customers as they wish, to REQUIRING them to do so.
I don’t think that’s the right measure, that the smallest unit has to be able to buy a practically small unit of goods. I think it’s more like if a one unit difference in the total bill for a ‘typical’ purchase is ‘significant’ then so is the unit of measure. Subjectively this is no longer true of .01 in the US system or even close to it, and that argument might be bolstered by also pointing out how nothing is sold in quantities worth .01. But a reasonable argument might have been made that a 0.01 difference in a total bill was not insignificant even after .01 candy etc disappeared.
Support for the penny now in the US is populist nonsense, though like some other populist nonsense it’s not limited to left or right.
The other practical argument is negative seigniorage. People in favor of the penny are trying to argue that losing money minting those coins, the ‘govt’s money’, actually their money is somehow offset by all the rip offs ‘business’ would perpetrate rounding everything up to the nearest .05, when there's no real reason to think that would happen (or else why don't they all raise their prices .04 now?). It also forgets that even if that happened to some limited degree it would be a one time. Losing money spending more to make a penny than $.01 goes on and on.
The smallest coins in general circulation in Australia or Canada are 5-cent pieces; each is worth about $0.04 U.S. The smallest coin in Norway is the 1-krone, worth $0.12. The smallest coin commonly encountered in Thailand is the 1-baht, worth about $0.03. (In each case, a finer accounting measure is used; rounding to available coins occurs only in cash transactions.) AFAIK, none of these countries consider their economies hopelessly inflated; I’ve heard no complaints about REQUIRING over/under-charging.
Australia, Canada and Norway are prosperous countries so, to compare apples with apples, let’s compare the “hopelessly inflated” U.S.A. with Thailand. The Thai baht is equivalent to about $0.08 in “purchasing power” and represents about $0.30 of labor at U.S. rates.
That’s right! The Thais tolerate a smallest coin that represents the same labor that in the U.S. would yield $0.30. Yet the U.S. cannot abandon the $0.01 coin and settle for $0.05 because " the leadership [would have] to openly declare that the economy is hopelessly inflated;" and because Americans are too innumerate to realize that rounding errors cancel when you appear at the cash register buying several minimal-value notions instead of just one.
I guess Aussies and Norwegians don’t know how persecuted they are. I wonder if that’s due to their socialism-induced sheepleness, lack of ethnic diversity, or the fact God never gave them a Bill of Rights.
(BTW, Thailand does still mint half- and quarter-baht coins but they’re seldom seen. 7-Elevens are one place that quote prices in fractional baht and I usually get short-changed by a half-baht whenever I buy an odd number of milk bottles. Last time, however, I got a half-baht discount with the cashier pushing a “Discount due to lack of coin for change” button!)
While we still have 1- and 2 cent (Euro) in Germany, unlike the Netherlands, one of our drug stores (dm) has silently abolished them for themselves. All prices are calculated to .05 Euros instead of the usual .99, .19 and similar. Customers can still pay with 1 and 2 cent coins, but they claim to save a bunch of money by not having to buy so many rolls to give change back, easier adding up and so on.
Actually, test have been done with different prices. By psychologists first, then marketing people using those results. And since some countries - Finnland, Netherlands and Ireland - first introduced the Euro, and then stopped minting 1- and 2 cent coins, they not only introduced a rounding system of some kind, one can look at the data before and after the step and observe people’s reaction.
I’m not an expert, but my guess is: similar to how before money was introduced, or how it’s done when hyperinflation happens. We can look at hyperinflation, or money being scarce in Germany after WWII (before the new government introduced the Mark). People either got scraps of paper from the merchant, small sweets, or purchases were rounded. Since most people shopped at the same merchants, this wouldn’t have been a big problem. In the 50s, merchants instead of supermarkets still did writing-up: the customer dropped their shopping list off in the morning before work, the items were put into the bag and collected in the evening on the way home, and once a week or a month, early Saturday morning, the bill would be balanced.
There was an interesting article where an historian said that all the usual stories about money was invented to make bartering half a cow for five fishes easier is likely completly wrong, because primitive bartering was inside one tribe, and the head of the families (elders) kept a detailed account of who owed whom what favour. Sharing food after a hunt was favour, but making a garment was also one. Favours were exchanged all the time.
It was only with big cities and traders from elsewhere that coins were necessary, and with Church in medieval time, paying a penance for things that had gotten destroyed.
I read that article, or a similar one. Even very large gifts without direct recompense were common. But, as you say, such a system is unworkable in modern times.
In the example where a gallon is the smallest salable unit of ale (“We’re tired of collecting your odd-shaped farthings”) it was probably common to hear “Don’t fill up Joe’s cup, Marleen; can’t remember the last time he’s bought a round.”
There’s the nickel and zinc mining interests to be heard from too … the US Mint is a big customer right now …