Gresham's Law - Encyclopedia




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GRESHAM'S LAW, in economics, the name suggested in 1857 by H. D. Macleod for the principle of currency which may be briefly summarized - "bad money drives out good." Macleod gave it this name, which has been universally adopted, under the impression that the principle was first explained by Sir Thomas Gresham in 1558. In reality it had been well set forth by earlier economic writers, notably Oresme and Copernicus. Macleod states the law in these terms: the worst form of currency in circulation regulates the value of the whole currency and drives all other forms of currency out of circulation. Gresham's law applies where there is under-weight or debased coin in circulation with full-weight coin of the same metal; where there are two metals in circulation, and one is undervalued as compared with the other, and where inconvertible paper money is put into circulation side by side with a metallic currency. See further Bimetallism; Money.

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