Gresham's Law: bad money drives out good
When two coins share a face value but not the same precious metal, people spend the cheap one and hoard the good one - so the bad money wins.
Imagine two coins that the law says are worth exactly the same - one full of silver, the other quietly debased. Which do you spend? Almost everyone spends the worse coin and squirrels away the better one. Multiply that choice across a whole economy and you get a strange result: the good money disappears from circulation, leaving only the bad. That is Gresham’s Law, usually compressed to four words: bad money drives out good.
The mechanism is pure self-interest. If a debased coin and a pure coin must legally trade at the same value, the pure coin is worth more melted down, exported, or simply hoarded. So people pay their debts with the junk and keep the treasure. The “bad” coin floods the market not because anyone wants it, but because nobody wants to part with anything better.
Good and bad coin cannot circulate together.
The rule is named for Sir Thomas Gresham (1519-1579), a financier to Queen Elizabeth I who urged her to fix a currency wrecked by the debasements of Henry VIII. But Gresham didn’t discover it - Nicolaus Copernicus described the same effect decades earlier, and ancient writers noticed it too. The catchy name came only in 1858, coined by economist Henry Dunning Macleod, who pinned a very old idea onto a memorable Tudor name.
The law still bites wherever official values drift from real ones - which is why hoarders, not spenders, end up holding the good stuff.
Sources & references
2 referencesWell-established. Corroborated by 2 independent sources.
