Editing Gresham's law (section)

==Reverse of Gresham's law (Thiers' law)==

The experiences of [[dollarization]] in countries with weak economies and currencies (such as [[Israel]] in the 1980s, [[Eastern Europe]] and countries in the period immediately after the collapse of the [[Eastern bloc|Soviet bloc]], or [[Ecuador]] throughout the late 20th and early 21st century) may be seen as Gresham's law operating in its reverse form (Guidotti & Rodriguez, 1992) because in general, the dollar has not been legal tender in such situations, and in some cases, its use has been illegal.<ref>{{Cite journal |last=Bernholz |first=Peter |date=March 31, 2011 |title=Understanding Early Monetary Developments by Applying Economic Laws: The Monetary Approach to the Balance of Payments, Gresham's and Thiers' Laws |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799983#:~:text=By%20contrast%2C%20Thiers%27%20Law%20%28a%20name%20coined%20by,good%20money%20will%20drive%20out%20the%20bad%20one. |journal=SSRN |doi=10.2139/ssrn.1799983 |ssrn=1799983 |s2cid=152412531 }}</ref>

[[Adam Fergusson (MEP)|Adam Fergusson]] and [[Costantino Bresciani-Turroni]] (in his book {{lang|it|Le vicende del marco tedesco}}, published in 1931) pointed out that, during the great [[inflation in the Weimar Republic]] in 1923,{{dubious|text=Gresham's Law began to work in reverse|This is apples and oranges, as Gresham's law referred to ''specie'', whereas this compares printed currency – by definition fiat money – with minted coins with some intrinsic metal value.|date=January 2022}} as the official money became so worthless that virtually nobody would take it, people simply stopped accepting the currency in exchange for goods. That was particularly serious because farmers began to hoard food. Accordingly, any currency backed by any sort of value became a circulating medium of exchange.<ref>{{cite book |url=http://mises.org/resources/4016 |first=Adam |last=Fergusson |title=When Money Dies: The Nightmare of the Weimar Collapse |chapter=12: The Bottom of the Abyss |publisher=Ludwig von Mises Institute |year=1975 |access-date=29 November 2009 |archive-date=24 March 2010 |archive-url=https://web.archive.org/web/20100324032949/http://mises.org/resources/4016 |url-status=dead }}</ref> In 2009, [[hyperinflation in Zimbabwe]] began to show similar characteristics.

Those examples show that in the absence of effective legal tender laws, Gresham's law works in reverse. If given the choice of what money to accept, people will accept the money they believe to be of highest long-term value, and not accept what they believe to be of low long-term value. If not given the choice and required to accept all money, good and bad, they will tend to keep the money of greater perceived value in their own possession and pass the bad money to others.

In short, in the absence of legal tender laws, the seller will not accept anything but money of certain value (good money), but the existence of legal tender laws will cause the buyer to offer only money with the lowest commodity value (bad money), as the creditor must accept such money at face value.<ref name="Rowe">{{cite web |url=http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/07/the-states-theory-of-money-california-and-canadian-tire.html |title=The State(s) Theory of Money: California and Canadian Tire |last=Rowe |first=Nick |date=2009-07-14 |work=Worthwhile Canadian Initiative |access-date=2009-07-16}}</ref>{{unreliable source?|reason=blog posts are generally not [[WP:RS|reliable sources]]|date=November 2022}}

Nobel Prize winner [[Robert Mundell]] believes that Gresham's law could be more accurately rendered, taking care of the reverse, if it were expressed as: "Bad money drives out good ''if they exchange for the same price''."<ref>{{cite web |url=http://www.columbia.edu/~ram15/grash.html |title=Uses and Abuses of Gresham's Law in the History of Money |first=Robert |last=Mundell |publisher=Columbia University |date=August 1998 |access-date=10 October 2009 |archive-date=11 January 2012 |archive-url=https://web.archive.org/web/20120111131003/http://www.columbia.edu/~ram15/grash.html |url-status=dead }}</ref>

The reverse of Gresham's law, that good money drives out bad money whenever the bad money becomes nearly worthless, has been named "Thiers' law" by economist Peter Bernholz in honor of French politician and historian [[Adolphe Thiers]].<ref>Peter Bernholz (2003), ''Monetary Regimes and Inflation'', pp. 41, 115, 132, Edward Elgar Publishing, Northampton, Massachusetts, {{ISBN|978-1-84542-778-8}}</ref> "Thiers' Law will only operate later [in the inflation] when the increase of the new flexible exchange rate and of the rate of inflation lower the real demand for the inflating money."<ref>Bernholz, p. 132</ref>