This post relates to the following Keystone Economic Principles:
1. We all make choices.
4. Economic systems influence choices.
Back when I worked at the Federal Reserve, I often heard questions about whether the penny should be discontinued. While I lived and worked in Chicago, Illinois (Land of Lincoln), I would explain that the role of the penny was decreasing in importance; that we could probably do without it; and that eliminating the penny would open up a slot in cash registers to accommodate dollar coins. (I know. That's an entirely different issue.)
But I often told questioners, "It depends on us. If we choose to not use the penny, it will eventually disappear." Essentially, the choices we make about the penny are a function of the system - we provide it, so it's part of the process. If we don't use it, it won't have a purpose and it eventually will disappear - like the two-cent piece from an earlier time.
That brings this post by Greg Mankiw, and an interesting follow-up about a number of merchants in Concord, Massachusetts who are taking it on themselves to do without the penny. Essentially, cash transactions are always rounded down to the nearest nickel (to eliminate the charge that businesses will rip us off by always rounding up).
It's interesting to note that Illinois' current favorite son is in favor of eliminating the penny. I'd like to hear your thoughts.