Gresham's law
Posted by Ripon Abu Hasnat on Sunday, September 14, 2014 | 0 comments
Gresham's law is an economic principle that states: "When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation." It is commonly stated as: "Bad money drives out good".
This law applies specifically when there are two forms of commodity money in circulation which are required by legal-tender laws to be accepted as having similar face values for economic transactions. The artificially overvalued money tends to drive artificially undervalued money out of circulation and is a consequence of price control.
The law was named in 1858 by Henry Dunning Macleod, after Sir Thomas Gresham (1519–1579), who was an English financier during the Tudor dynasty. However, there are numerous predecessors. The law had been stated earlier by Nicolaus Copernicus; for this reason, it is occasionally known as the Copernicus Law. It was also stated in the 14th century, by Nicole Oresme, and by jurist and historian Al-Maqrizi (1364–1442) in the Mamluk Empire; and noted by Aristophanes in his play The Frogs, which dates from around the end of the 5th century BC.
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