In November of 2009, an antique penny–a 1795 U.S. one-cent piece–sold at auction for $1.3 million. It was the first time a penny had ever gone for over $1 million. The coin is one of seven of its kind known to still exist.
Why would anyone pay $1.3 million for a penny? Other than having more money than he can spend, the buyer obviously is trying to “invest” his wealth in something that seems unlikely to lose its value. The whole story serves to debunk the “trickle down” theory of economics.
The “trickle down” theory suggests that when the wealthy are doing well, we all do well because they will spend their wealth, increase the sales of goods and services and invest in companies which create new jobs for the rest of us. In reality, having billions of dollars doesn’t make people more generous nor secure. The extremely wealthy do not invest all of their wealth in things that create jobs and new wealth for the rest of the economy. Often they “invest” in things like rare coins or old art which do not create new wealth. These are defensive investments meant to protect wealth. No jobs were created other than perhaps a few at the auction house.
This rare penny has no real value. It can’t be eaten. It won’t keep you warm. Its face value, one cent, wouldn’t buy you much of anything. It isn’t made of a really valuable metal. If it were melted down, it would lose almost all value. It isn’t especially pretty. It can be stolen and must be guarded and hidden away. It’s sale didn’t generate any new jobs or do much to stimulate the economy. Perhaps whomever sold the penny might spend some of the proceeds on something that will create new jobs, but most likely the $1.3 million will be “reinvested” in other rare coins, dusty bottles of vintage wine, or paintings by long dead artists. Things like this old, rare penny only have value when they are desired enough to be bought by someone with more money. It’s only value is in being sought after and sold. Money invested in this way does not recirculate in the economy. It is tied up, socked away, taken out of circulation. It does not generate new sales of goods or services. This kind of investment does not create anything new.
The same thing could be said for gold and diamonds. Except for a few industrial uses, they have no real value. Their worth is totally fictional. If you were stranded on a desert island, money, gold, Picasso’s paintings and rare coins would do you no good. They only have value when you can trade them for other goods or services.
In spite of the world’s current economic woes, the extremely wealthy can still buy rare coins, big houses, fancy cars or any thing else their hearts desire. The “Wall Street Journal” quotes says John Albanese, founder of Certified Acceptance Corp., based in Bedminster, N.J., which verifies graded coins as saying, “It’s easier to sell a $100,000 coin today than a $1,000 coin.” The rich have gotten richer in spite of a slowly recovering economy that has left the majority of Americans worse off than before the crash of 2008.
The flaw in the “trickle-down” economic theory is that the rich tend to keep their wealth. They work really hard to keep it from “trickling” away. That’s how they remain rich. Putting more money in a few pockets does not translate into more jobs and a robust economy. The Lamborghini car company employs far fewer workers than does Honda. The construction of a few multimillion dollar mansions affects the building industry far less than the sale of thousands of moderately sized homes. Giving a tax break to the top .1 percent of taxpayers does not result in a significant increase in the purchase of goods. Giving an equivalent tax break to those at the bottom of the economic ladder results in most of that money being recirculated in the economy many times over, increasing demand and producing economic growth.
The “American Dream” is sputtering for many Americans. Young people face a future where hard work and a good education will not necessarily lead to a comfortable life and a secure retirement. For the first period in our country’s history, capital investments earn more wealth than does Americans’ labor. Still we are encouraged to cut programs which benefit the poor. We are told we’ll all do better if we encourage the wealth accumulation in the pockets of a few by our tax laws. We are even convinced that the wealthy earn their privileged position and on the other side of the coin, that the poor must also deserve their lot.
Those of us in between must think our chances of becoming rich outweigh our chances of falling to the class below us. Why else would we defend ideas like elimination of inheritance taxes on multimillion dollar estates? Why would we support tax reforms that would shift tax burdens from the rich to the middle class? Half of all American families live on less than $50,000 a year. Not only has the middle class’s income flattened, but because of the crash in the housing market, their net worth has also taken a beating. Most of us live precariously close to becoming poorer rather than being listed amongst the richest 1 percent.
It should make us all feel better to know, however, that the richest among us are not necessarily happier. Deciding how many millions to bid on a rare penny apparently causes a great deal of stress.
Copyright © 2014 Janet Jacobson and Sustaining the Northern Plains