Gresham's Law Essay

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In simple terms, Gresham’s law is a monetary law stating that "bad money drives out good". If two different types of commodity money are floating around, which are taken by law as having the same value, then the more valuable type will be driven out from circulation. The law was named in 1860 by Henry Dunning Macleod, after Sir Thomas Gresham, who was an English merchant who founded the Royal Exchange in London, England during the Tudor dynasty. However, there had been a number of people who had stated the law before this. One example of someone who had stated it prior, was Nicolaus Copernicus, and because of this it also sometimes called the Copernicus Law. Some other examples are in the 14th century, by Nicole Oresme, and also by jurist and …show more content…

People always look for ways to make more money, and cheating out the coinage system was an easy way to do it back in the early history of money. There are a number of examples of governments reacting to bad money in the economy. One of them was the Great Recoinage of the late 17th century in England. Parliament decided saw the deterioration of England’s currency and decided to mint new coins and collect all of the old ones to recycle the metal. Citizens were forced to turn over any coins that had either been debased or clipped. This recoinage was a huge expense to the treasury, and as soon as the new coins were minted, they were exported, leaving mostly bad money in circulation. This was a major failure on England’s part by not paying attention to Gresham’s Law. Another example of Gresham’s law playing a part in a country’s economy, were the silver coins being circulated in the United States until the Coinage Act of 1965 was brought into law. The United States debased their coins by switching to cheaper metals, such as zinc and copper, thereby inflating the new debased currency. Citizens started to hoard the old silver coins, which contained 90% silver compared to the new ones which were only around 40% silver. They would hold on to them for their intrinsic value, and use the newly minted coins in their daily lives because of the lesser value. This led to the Hunt Brother’s, Nelson and William’s, …show more content…

Decision-makers should always think about this, not only in financial situations, but in everyday things in our lives. People will always try to create products that look appealing on the outside, but on the inside are far less valuable and well-made. But, as Gresham’s Law states, a “bad” good will always drive out a “good” good, which hurts an industry as a whole. It has been changed in to easier terms as "Silver currency will inevitably force gold currency out of circulation" (L. Pyenson, Servants of Nature (W.W. Norton, 1999) p. 21). It is something that really can not be avoided, and it will inevitably happen to any economy that runs off of currency with intrinsic

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