Gresham's law


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Gresham's Law

The theory that given two types of money with the same nominal value but different real values, the "bad" money will be spent while the "good" money will be hoarded. Strictly, the law only applies if the exchange rate between the two monies is decreed by the state, but it is sometimes invoked more broadly. While it does not always hold true, one example was the hoarding of U.S. coins in the 20th century as they gradually came to be minted with less valuable metals.

Gresham's law

the economic hypothesis that ‘bad’ MONEY forces ‘good’ money out of circulation. The principle applies only to economies the domestic money system of which is based upon metal coinage that embodies a proportion of intrinsically valuable metals such as silver and gold. Where governments issue new coins embodying a lower proportion of valuable metals, people are tempted to hoard the older coins for the commodity value of their metal content so that the ‘good’ money ceases to circulate as currency.
References in periodicals archive ?
Owing to their legal tender status, the operation of Gresham's Law swiftly ensured that greenbacks would displace gold in payments.
5) Like Mariana, Oresme is noteworthy for anticipating Gresham's law (28) and for insisting that currency debasement is tantamount to tyranny (35).
For curiosity I made a comparison with last year's issues of the same magazine; and I can not suggest a more convincing exercise for any person who doubts the validity of Gresham's law in the premises, nor can I suggest a more substantial basis for generalization.
He named it Gresham's law after reading a letter to Queen Elizabeth from Thomas Gresham (1519-79), an English merchant working as the Crown's financial representative in Antwerp.
Gresham's law takes effect in part because legal penalties against discrimination make it prudent for sellers to treat bad money as the de facto unit of account and for buyers to offer only bad money in exchange [Selgin 1996].
In other words, rather than seeing politics as something getting in the way of a good theory (and one can only applaud the notion of the participants in the seminar that good ideas should have greater currency than bad ones -- no Gresham's Law here
It was thought competition between the two currencies could lead to Gresham's Law that bad money drives out good, as in the sterling-dollar experience, and greater exchange-rate volatility.
Intriguingly, she argues that melodrama (which in a kind of Gresham's law of drama was driving tragedy and classic comedy from American stages) gained persuasiveness through its exemplification of performance, an attribute critical to Victorian middle-class society.
Bukofzer's choice of adjectives makes his estimation clear: the lute is "dignified" and worthy of serious consideration; the guitar, on the other hand, is "noisy" and "vulgar," an illegitimate usurper functioning as the negative variable in a musicological equivalent of Gresham's law.
Kuttner's travelogue encompasses Thomas Aquinas and Milton Friedman, George Orwell and Gresham's Law.
Word fads can cripple the language because they operate by a kind of verbal Gresham's Law.
Colwell and Trefzger cite Gresham's Law,(7) "Bad money drives out good," or in this case, lemons drive out cream puffs.