Seigniorage Is A Great Example Of How The Government Isn’t Like a Business And Shouldn’t Be

Two annoying (and related) tropes are the idea that what the government really needs is a smart businessman to step in and clean things up, and the idea that we should understand the federal government through analogies to a small firm. Via Neil Sinhababu, a Wikipedia account of earning a profit selling state-themed quarters helps illustrate some of the problems with this:

The “50 State” series of quarters (25-cent coins) was launched in the U.S. in 1999. The U.S. government planned on a large number of people collecting each new quarter as it rolled out of the U.S. Mint, thus taking the pieces out of circulation. Each set of 50 quarters is worth $12.50. Since it costs the Mint about five cents for each 25-cent piece it produces, the government made a profit whenever someone “bought” a coin and chose not to spend it. The U.S. Treasury estimates that it has earned about US$6.3 billion in seigniorage from the quarters over the course of the entire program.

There’s nothing false about this, but talking about the government making a profit by selling quarters is a bit odd. If the government were a business, you’d say that it’s buying up five cents of metal and labor and machinery and then selling the resulting coins for 25 cents a piece and that these profits arise since the US Mint is somehow created 20 cents worth of value per coin. But of course that’s not really what’s happening at all. The “profits” made here really have nothing to do with the selling of the quarters and everything to do with the fact that a quarter is stipulated to have a value of $0.25 so ever time the government makes a new quarter it’s “making money.” The limit on the process is that if the government makes tons and tons and tons of additional currency, people may start wanting the currency less and the dollar-denominated price of the stuff quarters are made out of might rise.