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Gresham’s Law

July 16, 2016 By Philip Barton

“When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued  money will flood into circulation.” (Wikipedia)

To put it simply, bad money will drive out good money.  Why would you spend a good coin if the other party was legally bound to accept your other coin that was worn or adulterated and contained less Gold?

Sir Thomas Gresham was an English merchant and financier who, according to the same Wikipedia page, did not write the quote ascribed to him.  They name the economist Henry Dunning Macleod, who in 1857 read about Gresham’s urging of Queen Elizabeth 1st to restore England’s degraded currency and reduced Gresham’s words to the now famous quote.

Whoever coined the quote, the concept had been realised long before, and by many, including Copernicus.  It was noted as far back as Aristophanes in his play ‘The Frogs’.

The significance of the concept becomes more interesting with the realisation that Gresham’s Law is not restricted to money.  It applies across the span of existence.  If all carrots are legislated as being of equal value, then limp old carrots will circulate at the market and fresh ones will be put in the pantry to be eaten – bad carrots will drive out good carrots.

It also applies to labour.  If all labour is legally valued as being equal (as in waiter pay rates in Australia), then the able will tend to hoard their potential and poor performance will ‘flood into circulation’.

Gresham’s Law is actually a sub-section of a more general law:

“Government imposed equality will produce in the legislatively affected area a tendency toward the lowest common denominator.”

The ongoing degradation of Western Society testifies to the law’s validity.

Filed Under: Philip Barton Tagged With: Copernicus, Gresham's Law, Henry Dunning Macleod, SirThomas Gresham, The Frogs, Western Society

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