Editing Gresham's law (section)

== Theory ==
The law states that any circulating currency consisting of both "good" and "bad" money (both forms required to be accepted at equal value under legal tender law) quickly becomes dominated by the "bad" money. This is because people spending money will hand over the "bad" coins rather than the "good" ones, keeping the "good" ones for themselves. Legal tender laws act as a form of price control. In such a case, the intrinsically less valuable money is preferred in exchange, because people prefer to save the intrinsically more valuable money.

Imagine that a customer with several silver [[sixpence (British coin)|sixpence]] coins purchases an item which costs five [[penny (English coin)|pence]]. Some of the customer's coins are more debased, while others are less so – but legally, they are all mandated to be of equal value. The customer would prefer to retain the better coins, and so offers the shopkeeper the most debased one. In turn, the shopkeeper must give one penny in change, and has every reason to give the most debased penny. Thus, the coins that circulate in the transaction will tend to be of the most debased sort available to the parties.

[[File:Two stacks of half dollars, one silver, one clad - effects of the Coinage Act 1965.jpg|thumb|A stack of twenty [[Walking Liberty half dollar]]s (left), which contain 90% silver. In an example of Gresham's law, these coins were quickly hoarded by the public after the [[Coinage Act of 1965]] debased half dollars to contain only 40% silver, and then were debased entirely in 1971 to base [[cupronickel]] (right).]]

If "good" coins have a face value below that of their metallic content, individuals may be motivated to melt them down and sell the metal for its higher intrinsic value, even if such destruction is illegal. The 1965 [[United States half-dollar coin]]s contained 40% silver; in previous years these coins were 90% silver (.900, or ''one nine [[fineness#silver|fine]]''). With the release of the 1965 half-dollar, which was legally required to be accepted at the same value as the earlier 90% halves, the older 90% silver coinage quickly disappeared from circulation, while the newer debased coins remained in use.{{citation needed|date=May 2014}} As the value of the dollar (Federal Reserve notes) continued to decline, resulting in the value of the silver content exceeding the face value of the coins, many of the older half dollars were melted down{{citation needed|date=May 2014}} or removed from circulation and into private collections and hoards. Beginning in 1971, the U.S. government abandoned including any silver in half dollars.  The metal value of the 40% silver coins began to exceed their face value, which resulted in a repeat of the previous event.  The 40% silver coins also began to vanish from circulation and into coin hoards.

A similar situation occurred in 2007 in the United States with the rising price of [[copper]], [[zinc]], and [[nickel]], which led the U.S. government to ban the melting or mass exportation of [[cent (United States coin)|one-cent]] and [[nickel (United States coin)|five-cent]] coins.<ref>{{cite web |url=http://www.usmint.gov/pressroom/index.cfm?flash=yes&action=press_release&ID=771 |title=News – U.S. Mint |website=www.usmint.gov |access-date=8 April 2018 |archive-date=12 September 2016 |archive-url=https://web.archive.org/web/20160912231117/http://www.usmint.gov/pressroom/index.cfm?flash=yes&action=press_release&ID=771 |url-status=dead }}</ref>

In addition to being melted down for its bullion value, money that is considered to be "good" tends to leave an economy through international trade. International traders are not bound by legal tender laws as citizens of the issuing country are, so they will offer higher value for good coins than bad ones. The good coins may leave their country of origin to become part of international trade, escaping that country's legal tender laws and leaving the "bad" money behind. This occurred in Britain during the period of adoption of the [[gold standard]]: In 1717 [[Isaac Newton]], then Master of the Mint, declared the gold guinea to be worth 21 silver shillings. This overvalued the gold guinea in Britain, making it "bad", and encouraged people to send "good" silver shillings abroad, where it could buy more gold than at home. This gold was then minted as currency, which bought silver shillings, which were sent abroad for gold, and so on. For a century hardly any silver coins were minted in Britain, and Britain moved onto a ''de facto'' gold standard.<ref>{{Cite journal |last=Fray |first=C R |date=1935 |title=Newton and the Gold Standard |url=https://www.jstor.org/stable/3020836 |journal=Cambridge Historical Journal |volume=5 |issue=1 |pages=109–117 |doi=10.1017/S1474691300001256 |jstor=3020836 }}</ref>

[[Austrian school of economics|Austrian economist]] [[Hans-Hermann Hoppe]] said that "so-called Gresham's law" only applies under certain conditions, largely a result of governmental interventionist policies. In his 2021 book, ''[[Economy, Society, and History]]'' Hoppe states:<blockquote>You might have heard about the so-called Gresham's law, which states that bad money drives out good money, but this law only holds if there are price controls in effect, only if the exchange ratios of different monies are fixed and no longer reflect market forces. Is it the case that bad money drives out good money under normal circumstances without any interference? No, for money holds to exactly the same law that holds for every other good. Good goods drive out bad goods. Good money drives out bad money, so this [[bezant]] was for something like 800 years considered to be the best money available and was preferred by merchants from India to Rome to the Baltic Sea.<ref>{{Cite book |last=Hoppe |first=Hans-Hermann |title=Economy, Society, and History |publisher=Mises Institute |year=2021 |isbn=978-1-61016-734-5 |location=Auburn, AL |page=49}}</ref></blockquote>