Gresham's Law


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Gresham's law:

see under Gresham, Sir ThomasGresham, Sir Thomas
, 1519?–1579, English merchant and financier. As the royal financial agent in Antwerp after 1551 he proved himself very able, though his methods were frequently more effective than ethical.
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Gresham's Law

(ECONOMICS) the hypothesis, associated with the Elizabethan merchant-financier, Sir Robert Gresham, that ‘bad money tends to drive good money out of circulation’, where ‘bad money’ is money which contains less bullion value for a stated face value than ‘good money’. The ‘law’ is particularly of interest as an early, archetypal, example of many laws in economics which assume individuals act rationally (see FORMAL AND SUBSTANTIVE RATIONALITY). see also IDEAL TYPE.

Gresham’s Law

 

an economic law, formulated by the 16th-century English statesman and financier T. Gresham, that states: “Bad money drives out good.” Actually this principle was known before him, as it had been noted that, upon circulation of coins of the same nominal denomination but different value, the lower-value coin assumes the function of circulating currency while the higher-value coin is hoarded, melted down into ingots, or taken abroad. For metal currency, this law had already been formulated by N. Copernicus in 1526. A full scientific analysis of the phenomena stated in Gresham’s law is given by the Marxist theory of money (see K. Marx, Contribution to the Critique of Political Economy, as well as Das Kapital, vol. 1, ch. 3).

The action of Gresham’s law is typical for bimetallism when, upon the legal establishment of a value ratio for gold and silver (for instance, 1:15), both gold and silver coins of appropriate weight and with the same nominal exchange value are freely minted from private metal reserves. When the market price of silver falls, say to a ratio of 1:20, it becomes profitable to exchange only silver coins. Gresham’s law also acts in the case of inflation: with the devaluation of paper money resulting from overissue, the population hoards gold and silver coins while the paper money usually remains in circulation.

References in periodicals archive ?
(5) A good definition is supplied by Mises (1998, p.447): "Bad money, says Gresham's Law, drives good money out of the country.
(5) Like Mariana, Oresme is noteworthy for anticipating Gresham's law (28) and for insisting that currency debasement is tantamount to tyranny (35).
(16) Gresham's Law holds that under certain circumstances "bad money" will drive "good money" out of circulation.
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.
MacLeod explained the phenomenon that he called Gresham's law on the basis of government intervention in monetary affairs.
Three possible causes of currency-market failure that might supply a rationale for the 10% tax are Gresham's law, asymmetric information, and network externalities.
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!), see the theory as something that has to make its way in the world of politics, of power.
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.
Meanwhile, Gray argues, in familiar globalphobic fashion, that the world economy today follows a kind of "Gresham's Law," in which "bad" capitalism drives out "good." "Sovereign states are waging a war of competitive deregulation, forced on them by the global free market," he writes.
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.
was often worse than Gresham's Law: it was not only that bad arguments seemed
Kuttner's travelogue encompasses Thomas Aquinas and Milton Friedman, George Orwell and Gresham's Law. The casual tourist can be overwhelmed by the display.