GRESHAM'S LAW. A principle of political economy formulated by Sir Thomas Gresham (q.v.) to the effect that in a monetary circula tion bad money drives out good. It was origi nally applied to the effect upon the circulation of mutilated, worn, or depreciated coinage. If into such a coinage new, full-weight coins be in jected, it will not be long before the latter are exported or find their way to the melting-pot, while the worn-out coins still continue to fulfill their function as money. The reason for this lies in the higher bullion value of the new coin. For exportation or industrial uses the value of the coin is determined by the weight. It is therefore the best coins which are sought for this purpose, and it is a familiar experience that the export of coin works towards the deteriora tion of the coinage. In latter days Gresham's law has been applied to concurrent circulation of different types of money—gold, silver, and paper. Under the joint circulation of gold and silver, that which in the currency of the country is the cheapest as compared with the valuations of other countries, and the world's market, will tend to displace the other metal. In like manner
the infusion into the circulation of irredeemable paper money promotes exportation of metallic money. Gresham's law, in the familiar form that bad money drives out good, of course applies abso lutely only where there is a redundancy of cur rency. In such a case there is a natural move ment toward the exportation of money, and that metal will be chosen for exportation which is of least value at home. Unless such redundancy exists, gold and silver may and do circulate side by side despite the fact that legal ratios do not conform to the general market, or, in other words, that in the sense of the maxim one is good aml the other bad. Consult: Gide, Political Economy (Paris, 1884) ; Walker, Political Economy (New York, 1886) ; also Daniel, "The Confirmation of Gresham's Law," in Annals of the American Academy of Political and Social Science, vol. vi. (Philadelphia, 1895).