Irrationality in the U.S. Coin Market

This is posted mainly for my numismatic friends. It concerns crazy high prices being paid for coins based on increments of condition perfection that are actually meaningless. The “slabbing” mentioned refers to coins in sealed capsules whose authenticity and grade is assigned by certification services. A version of this piece was just published in Coin World, but much condensed, omitting some significant points (and, oddly, the first line). So here is my complete text:

This Emperor has no clothes.

The U.S. coin market, that is — when it comes to the highest grades — especially for modern coins and the “top of the pop” thing (coins graded highest in the slabbing services’ population reports).

Let’s start with what’s rational about coin prices. They’re keyed to rarity and quality.

Rarity is a matter of supply and demand. The fewer the examples available to desirous buyers, the higher they’ll bid the price up.

The quality factor might seem similarly straightforward: better quality brings a higher price. That’s true of any goods. Numismatics in particular entails an aesthetic aspect. Better condition coins are nicer to look at. Thus, “eye appeal.” But note the complication that beauty is in the eye of the beholder, and collectors differ in what attracts them. There’s also a pride-of-ownership factor. Our collecting is a reflection of ourselves. (In my own collecting of world and ancient coins, I’m something of a condition snob.)

The rarity and quality factors are synergistic: in general, higher quality is rarer. Though not always. For 1883 “No Cents” nickels, or 1997-S Proof dimes, lower quality is actually the rarer. Of course, nobody will pay extra for that kind of rarity (except those pursuing “worst of” sets for the sake of numismatic perversity). But in the more usual situation — say, 1897-S dimes — high grade (mint state) coins are far rarer than well-worn ones, and command correspondingly higher prices.

There is also the concept of “condition rarity” where a coin otherwise common is hard to find in the best grades.

In all such cases the price disparity is rational and understandable to anyone. But what about, say, MS-67 versus MS-66 for modern coins? PCGS may have graded ten times more 66s than 67s. Does that make 67 a condition rarity? Should the price be ten times that of 66? Let alone a hundred times or more?

Basic human psychology comes into play here. I’ve mentioned pride of ownership. There’s a part of us — especially men, and coin collectors are mostly men — that wants to be the best and have the best. We call it “bragging rights.” And there’s also competitiveness, the desire to beat out the other fellow and thump one’s chest.

I see this in my own auctions. Some guys just don’t like the idea of being outbid, as though it’s losing a competition, even a knock to their manhood. They will top someone else’s bid just for the sake of claiming a victory. Probably they don’t consciously think this way, it’s unconscious. But it sure helps my prices realized.

Hugely feeding this is the advent of registry sets (a cunning invention by the grading services, to get fees on many common date coins that wouldn’t otherwise be worth slabbing). Now one can actually literally be certified as having the best collection of, say, Lincoln cents. So if you’re in that game, and suppose there’s only a few 1954 cents slabbed as MS-67, you’ve gotta have one. And you’ll pay way more than for a “common” MS-66. Way way more. Would you believe $31,200? That in fact is what an MS-67 1954 cent realized at Heritage’s 2018 FUN auction.

To be clear, 1954 is not even a scarce date. The bid price for MS-66 red is $55; though outside of a slab a BU, even if really nice, goes for maybe a buck. Meantime, for $31,200 you could literally buy a full roll of key date 1885 nickels — in Proof!

Something is seriously out of whack.

This carries the concept of condition rarity to an extreme that’s beyond irrational. Let’s take a deep breath and remember that while the difference between, say, EF and mint state 1897-S dimes is obvious and material (and the price difference is not huge), the distinction between MS-66 and MS-67 1954 cents is nothing of the kind. I am talking not about the market difference, but the actual physical quality difference. It’s awfully close to being a distinction without a difference.

We must also remember that this is all ultimately about aesthetics. People do not need coins. We collect them only because it is in some way pleasing to do so. Upon this foundation a gigantic economic edifice has been built, but at the end of the day, coins have no value except insofar as they confer pleasure on their owners. (Thus I sometimes say in my auction catalogs, “Love your coins for what they are, not for what they’re worth.”)

We do, once more, pay higher for better quality coins because they confer more pleasure. Again a matter of how a coin looks to the eye. But distinguishing between MS-66 and MS-67 requires close examination under magnification with special lighting. Otherwise they look just about identical — apart from any toning, which may actually have a far bigger impact on visual appeal than the bare number grade. Moreover (as Q. David Bowers keeps reminding us), those numbers don’t take account of strike either, a big aspect of a coin’s true quality. Thus the number grades reflect what is really a peculiar sort of tunnel vision. And still further, the numbers falsely imply a sort of scientific precision, when in fact they are a matter of subjective judgement, upon which even experts typically disagree.

Given all that, it might make sense to pay a little bit more for a coin that a grader at some grading service, on a particular day, after a particularly good lunch, decided to call MS-67 than for one in an MS-66 slab. But to pay multiples more — indeed, many hundreds of times more — is insane. In the fullness of time, collectors will come to their senses. As did the Dutch tulip speculators.

The original Sheldon scale contemplated just three quality levels for mint state coins (with one of them an almost impossible nirvana of perfection). Maybe a couple of finer differentiations would be reasonable. But expanding it to 11 (and even more, really, with pluses and Wings) stretched the concept of quality differentiation beyond what makes reasonable sense, given the subjectivity involved. Especially when a fetishistic obsession has emerged over distinguishing among inconsequential gradations of virtual perfection. This has sent U.S. numismatics down a rabbit hole pursuing an illusory holy grail (if I may mix my metaphors, and alliterate).

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5 Responses to “Irrationality in the U.S. Coin Market”

  1. Axel Kornfuehrer Says:

    This article explains succinctly why I stopped collecting US coins and switched to ancients (Roman in my case) about 2 decades ago.

  2. Mark V Says:

    The adage “common coin, uncommon condition has ensnared several generations of American coin collectors. The situation becomes even more absurd in the case of early large cents and colonials with very high price tags in holders so scratched or so grungy that quality cannot be determined. These things are often unsold lots from major auctions that have sloshed around in the trade for some time. The inability to inspect the edge closely (in most cases) and to weigh the coin poses numismatic problems.

    More than twenty years ago I heard a cordial but animated discussion of slabbing ancient coins between Victor England and the late Tom Cederlind. Victor’s position was mostly agnostic, but he thought there might be a place for common types in ordinary condition (Alexanders, owls). Tom maintained that it would be a pyramid scheme (not his exact term) in which every coin would eventually be assigned the highest grade it could ever attain. In other words, the entire scale would shift. Given what we know today, his remarks seem prescient.

  3. rationaloptimist Says:

    It’s true that the grading of ancient coins in slabs tends to be the highest a coin could arguably merit, which is generally just ridiculously high, with especially profligate use of “AU” and “MS.” (I know David Vagi and am frankly baffled at why he’s doing it this way). However, I don’t think it has spilled over to the non-slab market. Seems like there are 2 markets, one for fools who like the slabs and the other for normal serious collectors who continue to evaluate coins sensibly (and for whom slabs are a nuisance at best).

  4. ryan71 Says:

    In any market that has set quantities of a product, the only distinguishing factor has to be something. Otherwise, the product is a commodity and it is a race to the bottom of the pricing scale. Dealers figured this out long ago. If you don’t have enough variations the pricing will flatline. In order to increase the value, you have to find something that differentiates the product. Once you find that differentiator you have to capitalize it. Hence grading and slabbing. The ones that win here are the grading companies and the dealers. Collectors don’t win.

  5. Julio Peele Says:

    Greg, it’s been my understanding that many of the important advancements in science and technology have been made by men. Advancements as simple as the wheel, or bow and arrow, or as complex as psychoanalysis. I am not saying that women have contributed nothing towards our technical advancement. What I am saying is that it’s been my understanding that men have contributed more. I suspect this has less to do with women being prevented from exploration, and more to do with the differences between the activities men and women naturally gravitate towards. To blame men for the lack of female inventors is about as silly as blaming women for the lack of male nurses, wouldn’t you agree?

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