a penny beginning to meltWhy would people hold hard currency when they can get interest on it or melt it down? Why would governments continue to issue coins with metal content values higher than the denomination values? What is the theoretical probability of that? Yet it occurs in the real world where a penny has twice it value in copper and recent dimes are worth slightly more than their denomination.

The other interesting aspect of this is when numismatic value is increased by melt down events. An increase in scarcity of certain lower mintage dates that would be discovered only as collectors figure out that not so many coins from a certain date still exist.

From a paper by Drs. Espen Gaarder Haug and John Stevenson:

All physical monies with face values contain embedded options. By being aware of these options, more precise valuations of coins and paper money can be made. Some of the most commonly circulating coins in the USA (and also in the UK) have gone from having their embedded option deep-in-the-money to at-the-money, then to deep-out-of-the-money, and then returning to deep-in- the-money. The value of the optionality has been high. Because the central banks and commercial banks are selling such coins at a xed price, equal to the face value, the price and face value of such coins will only be the same when the option element is deep-in-the-money. When the option element moves towards at-the-money or out-of-the-money, arbitrage opportunities arise. Since governments are not adjusting the face values, they have to reduce the value of the coin for example, by stopping the circulation of such coins by other means or by taking legal action against the exporting and melting of coins.

Gene Gard replies:

a nickelI have thought about this a lot, and there is a little more to the interesting optionality of pennies and nickels…

Of course, the theoretical floor to a coin's value is max (face, metal value). In great inflationary times, the metal value will greatly exceed the face value of the coin. But here's the interesting part– if holding the coin in deflationary times, the face value increases, its purchasing power even as the metal value plummets in nominal terms.

Two implications– first, even though you don't get interest payments on your money, if you bought with the metal value "at the money" you are some earning real return in all cases unless the purchasing power of the dollar remains absolutely stagnant. Second, because of the previous point, you're not just getting a free call option on the metal value, you're really getting a free straddle– or in other words, a free "inflation vol call option." The worse inflation or deflation gets, the better off you are. And it's the same investment– no adjustment is required for inflation or deflation. Look back at what happened to TIPS breakevens toward the end of '08 beginning of '09 when the deflation bulls were winning!

Nickels are better than pennies from a storability perspective — nickels are 1 cent/gram and pennies are .4 cents per gram, though pennies are much more in the money right now according to I haven't decided if I'm buying a truckload of pennies or nickels at this point.



There are so many things associated with Diwali that to connect all of them together in one single perspective may be a difficult exercise. However, the salient mythological/religious/social ideas are:

1. Lord Rama, one of the 10 incarnations of Vishnu (the Senior most God amongst a million Gods that Hindus worship and the creator of the Universe) triumphed over Ravana the senior most demon of that age after a long struggle of 14 years. Rama symbolizes the ideal human conduct - truth, trust, patience, virtue. In fact Hindus call this incarnation of Rama as Purushottam Ram.

Purush means Man and Uttam means the best hence the best man ever Rama. The epic Ramayana depicts the ideal manly conduct as per the scriptures. Now the lighting of lamps, the fireworks and celebrations and mind-numbing spending on new clothes, truck-loads of gifts and everything is supposed to have been continuing for tens of thousands of years since the day the Favourite Prince Rama returned back to the State Capital of Ayodhya after triumphing over evil and bringing back his kidnapped wife Sita with him. The citizens of the kingdom had been atoning for the sins of the Queen Mother due to whose Machiavellian antics Rama was forced to confine himself to the jungles for 14 years renouncing the ascension to the throne in favour of his younger step-brother. So the denizens of the empire celebrated with lights, crackers, sweets, new clothes, renovation of homes and offices upon the return of the favourite prince from exile and the triumph of ideal over evil. Diwali always falls on the New Moon night and the lighting of lamps is interpreted by many as the citizens’ zest to welcome the Prince back with as much light as could be.  

2. The worship of Goddess Lakshmi who as per the Hindu mythologies is the wife of the Supreme amongst Gods — Vishnu is incidental. Because of the state-wide civilian mourning for over a decade even merchants of the empire decided on Rama’s return to open new books of accounts on the festive day of Diwali; it has per tradition continued to remain until today to be the day of initiation of new books of accounts, re-invigorating business relationships. Worship is the most widely prevalent religious ritual in Hinduism.

3. The mythological descriptions of different Gods (well we have a God and many more demons for each and everything) have been conveying since ages that Laxmi - the Goddess of Wealth is the wife of and thus only under the willful control of the most powerful in the Universe - Vishnu. For all others including mortals She is only a guest flowing at free will and never staying in any one’s house permanently. Depending on how much and how well you welcome her and treat her appropriately she chooses to be your guest for that much longer. Clean homes, clean minds, clean attitudes and “appropriate” treatment of money make the one who causes all the flows to enjoy the appropriate ambience you setup for her at your abode. Worshipping is the ritual, while most have lost the pursuit of figuring out the message behind the rituals. The association of respecting and worshipping Laxmi on this day of the Calendar was a byproduct of the new initiatives merchants in Rama’s Ayodhya took up eons ago. By now, merchants as well as the rest continue to follow it.

Laurel Kenner responds:

I learned about Diwali this week from some Indian friends down the hall. I had known from books and movies that Diwali is the festival of lights and that people light lots of candles. But there’s more to Diwali than candles. Here is what Alka Singh, a charming and formidable U Chicago grad, told me:

The celebration of Diwali lasts five days. The earth is lit by lamps and candles, and fireworks illuminate the sky. People decorate their doorsteps and courtyards, and hang garlands in their doorways. They buy gold ornaments, clothing and things for the home. Everybody wears new clothes for Diwali.

In the evening, people worship coins, representing wealth. They light hamps and conduct a special ceremony to welcome Lakshmi, the goddess of wealth, into their home and hearts.

I was astonished at the contrast with the complicated Western feelings about riches. In past centuries, Americans saw wealth as a reward for virtue. But in the past 100 years or so, aside from Ayn Rand, who adopted the dollar sign as her ensign (and Jon Hoenig, the Capitalist Pig), I think the unabashed and joyous worship of wealth has no parallel in the West. Perhaps some of our cultural experts and Indian specs will add to my understanding of this.

Pradeep Bonde elaborates:

The Hindu religion lays out four ‘Purusharthas’ or goals of human life. Each individual is expected to achieve these. The concept of Purusharthas in Hinduism emphasize a life of balance, achievement and fulfillment.

Purusha means human being and artha means object or objective. Purusharthas means objectives of man. According to the Hindu way of life, a man is expected or should strive to achieve four chief objectives (Purusharthas) in his life. In order of importance:

1. Dharma (righteousness)

2. Artha (material wealth)

3. Kama (desire)

4. Moksha (salvation)

Hinduism emphasizes the importance of material wealth for the overall happiness and well being of an individual. A house holder requires wealth, because he has to perform many duties to uphold dharma and ensure the welfare and progress of his family and society.

A person may have the intention to uphold the dharma, but if he has no money he would not be able to perform his duties and fulfill his dharma, therefore material wealth is the second most important objective in human life.


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