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Gresham’s Law

  • George SelginEmail author
Living reference work entry

Abstract

“Gresham’s Law” – the tendency for bad money to drive good money out of circulation – is one of the most well-known propositions of economics. Although it is far from universally valid, provided it is appropriately qualified, by noting the particular conditions that can make it operate, it helps to account for many important episodes in the history of money. This chapter reviews early statements of Gresham’s Law and the circumstances that informed them. It then considers the determinants of currency selection in different market settings, starting with the case of unhindered market, so as to arrive at a more precise understanding of the factors that can cause Gresham’s Law to operate. Next it shows how Gresham’s Law can account for some past episodes involving irredeemable paper money and bimetallism, and why it cannot predict the consequences of private coinage, or explain the replacement of coins by redeemable paper money. The chapter ends by critically assessing Arthur Rolnick and Warren Weber’s claim that Gresham’s Law, even in its more carefully stated versions, is a “fallacy.”

Keywords

Gresham’s Law Debasement Bimetallism Legal tender 

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Copyright information

© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.Center for Monetary and Financial AlternativesThe Cato InstituteWashingtonUSA

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