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Gresham’s Law

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Handbook of the History of Money and Currency

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.”

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Author information

Authors and Affiliations

  1. Center for Monetary and Financial Alternatives, The Cato Institute, Washington, DC, USA

    George Selgin

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  1. George Selgin
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Correspondence to George Selgin .

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Editors and Affiliations

  1. Department of Social Sciences, Universidad Carlos III de Madrid, Madrid, Spain

    Stefano Battilossi

  2. European University Institute, Florence, Italy

    Youssef Cassis

  3. School of Commerce, Waseda University, Tokyo, Tokyo, Japan

    Kazuhiko Yago

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Selgin, G. (2020). Gresham’s Law. In: Battilossi, S., Cassis, Y., Yago, K. (eds) Handbook of the History of Money and Currency. Springer, Singapore. https://doi.org/10.1007/978-981-13-0596-2_9

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