Editing Gresham's law

{{Short description|Monetary principle – "bad money drives out good"}}
{{Redirect|Good money|the banking platform|Good Money}}
{{Use dmy dates|date=March 2020}}
[[Image:Portretten van Sir Thomas Gresham en Anne Fernely Rijksmuseum SK-A-3118.jpeg|thumb|Sir [[Thomas Gresham]]]]

In [[economics]], '''Gresham's law''' is a monetary principle stating that "bad money drives out good". For example, if there are two forms of [[commodity money]] in circulation, which are accepted by law as having similar [[face value]], the more valuable commodity will gradually disappear from circulation.<ref>{{cite encyclopedia |url=http://www.britannica.com/topic/Greshams-law |title=Gresham's law – economics |publisher=Encyclopædia Britannica |access-date=8 April 2018}}</ref><ref>{{cite web |url=http://www.investopedia.com/terms/g/greshams-law.asp |title=Gresham's Law |author=Investopedia Staff |date=9 February 2010 |website=Investopedia |access-date=8 April 2018}}</ref>

The law was named in 1857 by economist [[Henry Dunning Macleod]] after Sir [[Thomas Gresham]] (1519–1579), an English [[financier]] during the [[Tudor dynasty]].<ref>{{cite book |last= Macleod|first= Henry Dunning |author-link = Henry Dunning Macleod |title= The History of Economics |year= 1896 |place= London |publisher= Bliss, Sands and Co.|url= https://archive.org/stream/historyofeconomi00macliala#page/n5/mode/2up |pages= [https://archive.org/details/historyofeconomi00macliala/page/38/mode/2up?view=theater 38]-39; [https://archive.org/details/historyofeconomi00macliala/page/146/mode/2up?view=theater 146]; [https://archive.org/details/historyofeconomi00macliala/page/448/mode/2up?view=theater 448 ] –  |accessdate= 7 December 2023|via= Internet Archive}}</ref> Gresham had urged Queen Elizabeth to restore confidence in then-[[debasement|debased]] English currency.

The concept was thoroughly defined in Renaissance Europe by [[Nicolaus Copernicus]] and known centuries earlier in classical Antiquity, the Near East, and China.

== "Good money" and "bad money" ==
Under Gresham's law, "good money" is money that shows little difference between its nominal value (the face value of the coin) and its [[commodity value]] (the value of the metal of which it is made, often [[precious metal]]s, such as [[gold]] or [[silver]]).<ref name=":0">{{Cite web |last=Wooldridge |first=Leslie Quander |title=Fiat money: Currencies that derive their value largely through trust in the governments that issue them |url=https://www.businessinsider.com/personal-finance/fiat-money |access-date=2023-10-05 |website=Business Insider |language=en-US}}</ref>

The [[price spread]] between [[face value]] and commodity value when it is minted is called [[seigniorage]]. As some coins do not circulate, remaining in the possession of [[coin collectors]], this can increase demand for coinage.

On the other hand, "bad money" is money that has a commodity value considerably lower than its face value and is in circulation along with good money, where both forms are required to be accepted at equal value as legal tender.

In Gresham's day, bad money included any [[coin]] that had been debased. [[Debasement]] was often done by the issuing body, where less than the officially specified amount of precious metal was contained in an issue of coinage, usually by [[alloy]]ing it with a [[base metal]]. The public could also debase coins, usually by [[Coin clipping|clipping]] or scraping off small portions of the precious metal, also known as "stemming" ([[Reeding#Numismatics|reeded edges]] on coins were intended to make clipping evident). Other examples of bad money include [[counterfeit]] coins made from base metal. Today virtually all circulating coins are made from base metals, often the cheapest available, durable base metal; collectively these monies are known as [[fiat money]]. While virtually all contemporary coinage is composed solely of base metals, there have been periods during the 21st century in which the market value of some base metals, like copper, have been high enough that at least one common coin (the U.S. [[Nickel (United States coin)|nickel]]) still maintained "good money" status.<ref name=":0" />

In the case of clipped, scraped, or counterfeit coins, the commodity value was reduced by fraud.  The face value remains at the previous higher level. On the other hand, with a coinage debased by a government issuer, the commodity value of the coinage was often reduced quite openly, while the face value of the debased coins was held at the higher level by legal tender laws.

The old saying, "a bad penny always turns up" is a colloquial recognition of Gresham's law.

== 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>

== History of the concept ==
Gresham was not the first to state the law which took his name. The phenomenon had been noted by [[Aristophanes]] in his play ''[[The Frogs]]'', which dates from around the end of the 5th century BC. The referenced passage from ''[[The Frogs]]'' is as follows (usually dated at 405 BC):<ref name="frogs">{{cite book |author1=Aristophanes |title=The Frogs (tr. Gilbert Murray) |year=1908 |page=[https://archive.org/details/frogstranslatedi00arisuoft/page/56 56] |url=https://archive.org/details/frogstranslatedi00arisuoft |access-date=17 April 2019 |publisher=George Allen & Sons |location=London}}</ref>

{{poemquote|It has often struck our notice that the course our city runs
Is the same towards men and money. She has true and worthy sons:
She has good and ancient silver, she has good and recent gold.
These are coins untouched with alloys; everywhere their fame is told;
Not all Hellas holds their equal, not all Barbary far and near.
Gold or silver, each well minted, tested each and ringing clear.
Yet, we never use them! Others always pass from hand to hand.
Sorry brass just struck last week and branded with a wretched brand.
So with men we know for upright, blameless lives and noble names.
Trained in music and palaestra, freemen's choirs and freemen's games,
These we spurn for men of brass...}}

According to Ben Tamari, the currency devaluation phenomenon was already recognized in ancient sources.<ref name="Tamari">Originally published as {{cite journal|last1=Tamari|first1=Ben|date=1982|script-title=he:חוק גרשם ופרדוקס החסכון |trans-title=Gresham's Law and the Savings Paradox|journal=רבעון לכלכלה|volume=115|access-date=15 March 2012|url=http://www.bentamari.com/PicturesEcometry/articals02-GreshamLawEn.pdf|language=he}} translated and updated in 2011 at {{cite web|url=http://www.bentamari.com/PicturesEcometry/articals02-GreshamLawEn.pdf|title=Gresham's Law|first=Ben|last=Tamar|others=Translated by Liat Etta|date=July 2011|access-date=15 March 2012}}</ref> He brings some examples which include the [[Machpela Cave]] transaction<ref>{{bibleverse||Genesis|23:16|HE}}</ref> and the building of the [[Solomon's Temple|Temple]]<ref>{{bibleverse|1|Kings|10:21|HE}}</ref> from the Bible and the Mishna in tractate Bava Metzia ([[s:Mishnah/Seder Nezikin/Tractate Bava Metzia/Chapter 4/1|Bava Metzia 4:1]]) from the [[Talmud]].<ref name = "Tamari" />

In China, [[Yuan dynasty]] economic authors [[Yeh Shih]] and [[Yuan Hsieh]] (c. 1223) were aware of the same phenomenon.<ref>{{cite book|title=Forty Centuries of Wage and Price Controls: How Not To Fight Inflation|first1=Robert L.|last1=Shuettinger|first2=Eamonn F.|last2=Butler|place=Thornwood, NY|publisher=The Heritage Foundation|year=1979|page=14|isbn= 0-89195-023-0}}</ref>

[[Ibn Taimiyyah]] (1263–1328) described the phenomenon as follows:

{{blockquote|If the ruler cancels the use of a certain coin and mints another kind of money for the people, he will spoil the riches (amwal) which they possess, by decreasing their value as the old coins will now become merely a commodity. He will do injustice to them by depriving them of the higher values originally owned by them. Moreover, if the intrinsic values of coins are different it will become a source of profit for the wicked to collect the small (bad) coins and exchange them (for good money) and then they will take them to another country and shift the small (bad) money of that country (to this country). So (the value of) people's goods will be damaged.}}

Notably this passage mentions only the flight of good money abroad and says nothing of its disappearance due to hoarding or melting.<ref>{{cite web|url=http://www.islamic-world.net/economics/ibn_taimiyyah.htm|archive-url=https://web.archive.org/web/20040316133009/http://www.islamic-world.net/economics/ibn_taimiyyah.htm|url-status=dead|archive-date=16 March 2004|title=Economic Concepts of Ibn Taimiyyah|date=16 March 2004|access-date=8 April 2018}}</ref> Palestinian economist Adel Zagha also attributes a similar concept to medieval Islamic thinker [[Al-Maqrizi]], who offered, claims Zagha, a close approximation to what would become known as Gresham's law centuries later.<ref>[https://www.dohainstitute.org/en/Events/Pages/ACRPS-Seminar-Al-Maqrizi's-Contribution-to-Economic-Thought.aspx "ACRPS Seminar on the Contribution of Al-Maqrizi to Economic Thinking"]. [[Arab Center for Research and Policy Studies]].</ref>

In the 14th century it was noted by [[Nicole Oresme]] {{circa|1350}},<ref name="ReferenceA">Woods, Thomas E. ''How The Catholic Church Built Western Civilization''.</ref>{{full citation needed|date=November 2022}} in his treatise ''On the Origin, Nature, Law, and Alterations of Money'',<ref name="Durant 1957 252">{{cite book |last=Durant |first=Will |title=The Reformation |series=[[The Story of Civilization]] |volume=6 |publisher=[[Simon & Schuster]] |year=1957 |page=252}}</ref> and by jurist and historian [[Al-Maqrizi]] (1364–1442) in the [[Mamluk Empire]]<!--when exactly did he do it?-->.<ref>{{cite book|last=Baeck|first=Louis|title=The Mediterranean Tradition in Economic Thought|date=1994|publisher=Routledge|location=New York|isbn=0-415-09301-5<!-- |page=241 -->|pages=105–106}}</ref>

Johannes de Strigys, an agent of [[Ludovico III Gonzaga, Marquis of Mantua]] in [[Venice]], wrote in a June 1472 report {{lang|it|che la cativa cazarà via la bona}} ("that the bad money will chase out the good").<ref>{{cite book|author=Fernand Braudel|title=La Méditerranée et le monde méditerranéen à l'époque de Philippe II, Volume 2: Destins collectifs et mouvements d'ensemble|language=fr|date=1966|location=Paris|publisher=Armand Colin|page=41}}</ref>

In the year that Gresham was born, 1519, it was described by [[Nicolaus Copernicus]] in a [[treatise]] called {{lang|la|italic=yes|[[Monetae cudendae ratio]]}}: "bad (debased) coinage drives good (un-debased) coinage out of circulation". Copernicus was aware of the practice of exchanging bad coins for good ones and melting down the latter or sending them abroad, and he seems to have drawn up some notes on this subject while he was at [[Olsztyn]] in 1519. He made them the basis of a report which he presented to the [[Prussian estates|Prussian Diet]] held in 1522, attending the session with his friend [[Tiedemann Giese]] to represent his chapter. Copernicus's {{lang|la|italic=yes|Monetae cudendae ratio}} was an enlarged, [[Latin]] version of that report, setting forth a general theory of money for the 1528 diet. He also formulated a version of the [[quantity theory of money]].<ref name="Angus Armitage pp. 89">Angus Armitage, ''The World of Copernicus'', chapter 24: "The Diseases of Money", pp. 89–91</ref> For this reason, it is occasionally known as the Gresham–Copernicus law.<ref name="Measurement of Co-Circulation of Currencies">{{cite book |title=Measurement of Co-Circulation of Currencies |url=https://books.google.com/books?id=5XvPv3vWdSQC&pg=PT61 |access-date=16 March 2013 |publisher=International Monetary Fund |isbn=978-1-4552-9991-1 |page=61 |date=1995}}</ref>

Sir [[Thomas Gresham]], a 16th century financial agent of the English Crown in the city of Antwerp, was one in a long series of proponents of the law, which he did to explain to [[Elizabeth I of England|Queen Elizabeth I]] what was happening to the English shilling. Her father, [[Henry VIII of England|Henry VIII]], had replaced 40% of the silver in the coin with base metals, to increase the government's income without raising taxes. Astute English merchants and ordinary subjects saved the good shillings from pure silver and circulated the bad ones. Hence, the bad money would be used whenever possible, and the good coinage would be saved and disappear from circulation.

According to the economist [[George Selgin]] in his paper "Gresham's Law":

{{blockquote|As for Gresham himself, he observed "that good and bad coin cannot circulate together" in a letter written to Queen Elizabeth on the occasion of her accession in 1558. The statement was part of Gresham's explanation for the "unexampled state of badness" that England's coinage had been left in following the "Great Debasements" of Henry VIII and [[Edward VI of England|Edward VI]], which reduced the metallic value of English silver coins to a small fraction of what it had been at the time of Henry VII. Owing to these debasements, Gresham observed to the Queen, that "all your fine gold was convayed out of this your realm".<ref name="eh.net">{{cite web |url=http://eh.net/encyclopedia/article/selgin.gresham.law |title=Gresham's Law |website=EH.net |archive-url=https://web.archive.org/web/20130317073119/http://eh.net/encyclopedia/article/selgin.gresham.law |archive-date=2013-03-17}}</ref>}}

Gresham made his observations of good and bad money while in the service of Queen Elizabeth, with respect only to the observed poor quality of British coinage. Earlier monarchs, Henry VIII and Edward VI, had forced the people to accept debased coinage by means of legal tender laws. Gresham also made his comparison of good and bad money where the precious metal in the money was the same metal, but of different weight. He did not compare silver to gold, or gold to paper.

In his "Gresham's Law" article, Selgin also offers the following comments regarding the origin of the name:

{{blockquote|The expression "Gresham's Law" dates back only to 1858, when British economist [[Henry Dunning Macleod]] (1858, pp. 476–8) decided to name the tendency for bad money to drive good money out of circulation after Sir Thomas Gresham (1519–1579). However, references to such a tendency, sometimes accompanied by discussion of conditions promoting it, occur in various medieval writings, most notably Nicholas Oresme's (c. 1357) ''Treatise on money''. The concept can be traced to ancient works, including [[Aristophanes]]' ''The Frogs'', where the prevalence of bad politicians is attributed to forces similar to those favoring bad money over good.<ref name="eh.net"/>}}

==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>

==Analogs in other fields==
The principles of Gresham's law can sometimes be applied to different fields of study. Gresham's law may be generally applied to any circumstance in which the true value of something is markedly different from the value people are required to accept, due to factors such as lack of information or governmental decree.

Vice President [[Spiro Agnew]] used Gresham's law in describing American [[news media]], stating that "Bad news drives out good news", although his argument was closer to that of a [[race to the bottom]] for higher ratings rather than over- and under-valuing certain kinds of news.<ref>[[Spiro Agnew|Agnew, Spiro Theodore]] (13 November 1969). [http://www.americanrhetoric.com/speeches/spiroagnewtvnewscoverage.htm "Television News Coverage"]. Des Moines, Iowa – via American Rhetoric.</ref>

[[Gregory Bateson]] postulated an analogue to Gresham's law operating in cultural evolution, in which "the oversimplified ideas will always displace the sophisticated and the vulgar and hateful will always displace the beautiful. And yet the beautiful persists."<ref>Gregory Bateson, ''Mind and Nature: A Necessary Unity'' 6 (1979).</ref>

[[Cory Doctorow]] wrote that a similar effect to Gresham's law occurred in [[carbon offset]] trading. The alleged information asymmetry is that people find it difficult to distinguish just how effective credits purchased are, but can easily tell the price. As a result, cheap credits that are ineffective can displace expensive but worthwhile carbon credits.<ref>{{cite web| url = https://pluralistic.net/2020/12/12/fairy-use-tale/#greenwashing| title = Carbon offsets are bullshit |last=Doctorow |first=Cory |work=Pluralistic |date=12 December 2020}}</ref> The example given was [[The Nature Conservancy]] offering cheap, yet "meaningless", carbon credits by purchasing cheap land unlikely to be logged anyway, rather than expensive and valuable land at risk of logging.<ref>{{cite news| url = https://www.bloomberg.com/features/2020-nature-conservancy-carbon-offsets-trees/| title = These Trees Are Not What They Seem: How the Nature Conservancy, the world's biggest environmental group, became a dealer of meaningless carbon offsets| newspaper = Bloomberg |first=Ben |last=Elgin
|date=9 December 2020}}</ref>

A corollary, Hughes' law, exists in moral philosophy, stating that, "The evil acts of bad men elicit from better men acts which, under better circumstances, would also be called evil."<ref>{{cite book| url = https://books.google.com/books?id=ugwYEAAAQBAJ&pg=PT77| title = Ethical Universe: the Vectors of Evil Vs. Good: Secular Ethics for the 21st Century|last=McAlister |first=John W. |work=ISBN : 9781665511919 |date=14 January 2021| publisher = AuthorHouse| isbn = 9781665511919}}</ref>

In the market for [[used car]]s, [[Lemon (automobile)|lemon automobiles]] (analogous to bad currency) will drive out the good cars.<ref>Phlips, Louis (1983). [https://archive.org/details/economicsofprice0000phli/page/239 ''The Economics of Price Discrimination'']. p. 239.</ref> The problem is one of asymmetry of information. Sellers have a strong financial incentive to pass all used cars off as good cars, especially lemons. This makes it difficult to buy a good car at a fair price, as the buyer risks overpaying for a lemon. The result is that buyers will only pay the fair price of a lemon, so at least they reduce the risk of overpaying. High-quality cars tend to be pushed out of the market, because there is no good way to establish that they really are worth more. [[Certified pre-owned]] programs are an attempt to mitigate this problem by providing a [[warranty]] and other guarantees of quality. ''[[The Market for Lemons]]'' is a work that examines this problem in more detail.

==See also==
{{cols}}
* [[Adverse selection]]
* [[Demurrage currency]]
* [[Free silver]]
* [[Inflation]]
* [[Junk silver]], coins collected specifically for the value of their silver content
* [[Lemon socialism]]
* [[List of eponymous laws]]
* [[List of multiple discoveries#14th century|List of multiple discoveries]]
* [[Metal theft]]
* [[Penny debate in the United States]]
* [[Seigniorage]]
* [[Worse is better]]
{{colend}}

==Notes==
{{reflist}}

==References==
* Armitage, Angus, ''The World of Copernicus'', New York, Mentor Books, 1951.
* Bernholz, Peter and Gersbach, Hans, "Gresham's Law: Theory." The New Palgrave Dictionary of Money and Finance, vol. 2. Macmillan: London and Basingstoke 1992, 286–288.
* [[Vannevar Bush|Bush, Vannevar]], (1950) ''Science, the Endless Frontier'', Report from the Director of the OSRD to President H. Truman
* Guidotti, P.E., & Rodriguez, C.A. (1992).  Dollarization in Latin America – Gresham law in reverse.  ''[[International Monetary Fund]] Staff Papers, 39'', 518–544.
* {{cite journal |last=Rolnick |first=A. J. |author2=Weber, W. E. |date=1986 |title=Gresham's Law or Gresham's Fallacy |journal=Journal of Political Economy |volume=94 |issue=1 |pages=185–199 |doi=10.1086/261368 |jstor= 1831965|s2cid=102968 |url=http://minneapolisfed.org/research/qr/qr1012.pdf }}
* [[Rothbard, M.N.]] (1980). ''[[What Has Government Done to Our Money?]]'' Gresham's Law and Coinage [http://www.mises.org/money/3s5.aspLudwig von Mises Institute].
* Selgin, G., University of Georgia (2003). [https://web.archive.org/web/20110514173430/http://eh.net/encyclopedia/contents/selgin.gresham.law.php Gresham's Law].
* {{cite book | author=Spiegel, Henry William | title=The growth of economic thought | edition=3rd | publisher=Duke University Press [Durham & London] | date=1991 | isbn=0-8223-0965-3}}
* {{cite book|last=Stokes|first=D.E|date=1997|title=Pasteur's Quadrant: Basic Science and Technological Innovation|url=https://archive.org/details/pasteursquadrant00stok|url-access=registration|publisher=Brookings Institution Press|location=Washington, D.C.|isbn=0815781776}}

==External links==
{{Wiktionary|a bad penny always turns up}}
*{{Commons category-inline}}
{{wiktionary|bad money drives out good}}
* [https://web.archive.org/web/20120221164526/http://eh.net/encyclopedia/article/selgin.gresham.law ''Gresham's Law'' by George Selgin] (archived 21 February 2012)
* [http://www.system-polskiego-prawa-podatkowego.pl/traktat.html Multi-language translation of Nicolaus Copernicus, ''Monete Cudende Ratio'']
* [http://www.coinflation.com Coinflation.com] – illustrates Gresham's Law based upon the current metal value of coins in circulation.

{{Nicolaus Copernicus|state=collapsed}}
{{Authority control}}

{{DEFAULTSORT:Gresham's Law}}
[[Category:Adages]]
[[Category:Monetary policy]]
[[Category:Eponymous laws of economics]]
[[Category:Metallism]]
[[Category:International trade theory]]
[[Category:Nicolaus Copernicus]]
[[Category:1858 in economic history]]