Running Head: FAILURE OF THE SUSAN B. ANTHONY COIN

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Failure of the Susan B. Anthony Coin

 

by

 

Anthony P. Niemann

 

University of Louisville

 

ELFH 664-50

 

Spring, 2006

Failure of the Susan B. Anthony Coin

            It is universally accepted that the U.S. government’s attempt to circulate the Susan B. Anthony coin was a failure. When it was introduced on July 1, 1979, most people in government felt that the coin was certain to succeed. Inflation had eroded the purchasing power of the U.S. government’s smallest note, the dollar bill, over the previous 100 years. Three reasons the government felt the Susan B. Anthony dollar coin was necessary are presented. Next, reasons for the failure of government to reach their goal for the Susan B. Anthony dollar coin are presented.

            The government felt that benefits of the Susan B. Anthony dollar included three major items. The first benefit was an anticipated positive fiscal effect as a result of speeding up retail transactions. Using a coin for purchases in vending machines would be more reliable than using a dollar bill. Dollar bills are more widely circulated than larger denomination bills. Due to frequency of use, dollar notes are generally in poor condition, lasting only about 1.4 years before they need to be replaced. Problematic dollar bill changers would not have to be relied on for vending machines if the public used the new dollar coin. Thus, a dollar coin would speed up vending machine transactions. Once the public got used to the dollar coin and started using it in vending machines, transactions would be simplified. Having a one-dollar coin would quicken the pace of small retail transactions, making purchases less awkward during the process (United States General Accounting Office, 1990).

The second benefit that the government expected from a dollar coin was the ability to increase the variety of goods available through vending machines. With inflation over the last fifty years, the numbers and types of product that could be purchased from a vending machine for $0.25 had decreased. This author can remember when cokes were $0.05 and cigarettes were

$0.25 when purchased from a vending machine. Higher priced items could be purchased with a dollar coin in a vending machine, and the variety of products offered could be increased.

The third expected benefit to be derived from the creation and use of the Susan B. Anthony coin was the savings realized from printing costs associated with the dollar note. Obviously the dollar bill is not as durable as a dollar coin would be. It was estimated that a dollar coin would last 20 years to 30 years, while a dollar bill lasts only about 1.4 years. Once the dollar coin was circulated and in use, the dollar bill would no longer need to be printed. Although it is cheaper to produce a dollar bill than a dollar coin, a large savings would be realized due to the durability of the dollar coin. In 1990, the U.S. General Accounting Office (GAO) estimated that the federal government could save about $318 million dollars annually if they replaced the dollar bill with a coin, due to the replacement costs of producing dollar bills (United States General Accounting Office, 1990). GAO estimated in 2002 the annual savings of eliminating the dollar bill amounted to $500 million annually.

Many industrialized nations prefer to produce coins for small denominations and notes for larger denominations. Using coins for small denominations can save money because coins are much more durable than notes. Canada’s lowest note is two dollars, which is worth about $1.75 in U. S. dollars. The largest coin in Canada is a $1.00 coin that is worth about $0.87 in U.S. currency. Britain’s smallest note is 5 pounds, worth about $8.86 in U. S. currency, and their largest coin is 1 pound, worth $1.77 today. Japan’s smallest note is 1000 yen, worth about $8.52 in today’s U. S. dollars. Their largest coin is 500 yen, worth $4.26 at this time. Germany’s lowest note is the 10 Deutsche Mark, currently worth about $6.20 in U.S. dollars. Their largest coin is the 5 Deutsche Mark, worth $3.10 today. The smallest U.S. note is $1.00 and the largest coin is $0.25, both of which have a much smaller value than notes and coins in other industrialized nations. The U.S. does circulate a Kennedy half-dollar, but this large coin was primarily created as a commemorative coin and is not in widespread use.

Let’s now examine why the three benefits the government expected from the creation of the Susan B. Anthony coin were not realized. The first expected benefit was the positive fiscal benefit due to the speed-up of transactions. The banking industry was against using the coins because they were heavier and harder to transport than the dollar note. The U.S. government put little thought into how they would get the public to use the coin. They assumed that the public would be reluctant to use the coin at first, but would come to use it eventually. Consequently, the coin was never adequately marketed to the public. In addition, not enough research went into the design of the new coin, which looked a lot like the quarter and seemed to confuse the public. How could transactions be faster and smoother if the public had a difficult time recognizing which of their coins were quarters, and which coins were dollars? Moreover, how could the public use them if they were not carrying them?

The second anticipated benefit that never materialized was the increase of goods available through vending machines. Manufacturers of vending machines did not modify changers so that they could accept the new coin. Although vendors were in favor of the coin, they did not want to invest in new changers for their vending machines until they saw that the coin was accepted and used by the public (Reiter, 1980). They were waiting to see if the public started using the dollar coins before they modified their equipment. This was an indication of the presence of a condition referred to as “network externalities” (Lotz & Rocheteau 2004, p. 2).

The third anticipated benefit from the Susan B. Anthony coin was the savings that could be realized as a result of eliminating printing costs associated with the dollar note. A Treasury task force recommended that the dollar note be removed from circulation, but Congress did not want to pass laws that caused it to be removed from circulation (United States House of Representatives, 1979). Although many in Congress realized that the dollar coin would not be used unless the dollar note was removed from circulation, it was politically risky to legislate this. Few politicians were willing to jeopardize their position to effect a change that would be good for the country but risky for them.

In conclusion, we can summarize why the Susan B. Anthony coin failed to gain wide acceptance and use in the United States. Although the dollar coin was generally recognized as an innovation that would benefit the U.S., the advantages were not properly marketed to the population. Little thought went into the design of the coin. Attention should have been paid to vending machine operators concern as well as insuring the coin would be acceptable to the public. Because of the design limitations, the lack of adequately marketing the coin, and unanticipated resistance of the public, it never gained acceptance. Finally, it was necessary to remove the dollar note from circulation to insure success of the dollar coin, a task that Congress was unwilling to perform (U.S. House of Representatives, 1979). This lack of action helped to insure the failure of the Susan B. Anthony dollar coin.

References

Lotz, S., & Rocheteau, G. (2004). The fate of one-dollar coins in the U.S. Federal Reserve Bank

of Cleveland, Economic Commentary, 4p. Retrieved on January 29, 2006, from

ABI/INFORM.

Reiter, E. (1980, March 16). Down, but not out. New York Times, p. D46.

United States General Accounting Office. (1990). National coinage proposals: Limited public

demand for new dollar or elimination of pennies. Washington D. C.: U.S. Government

Printing Office.

United States House of Representatives. (1978). Proposed smaller one-dollar coin. Hearings

before the 95th Congress, Washington D.C.:  U.S. Government Printing Office.

 

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