Gresham's Law Redux

"Good Money"	"Bad Money"
Not Debased	Debased
Heavier	Lighter
More Valuable	Less Valuable
More Expense	Less Expense
More Costly	Cheaper

Reviewing the previous post, one finds a number of ways to describe good and bad money. (See table at right.)

These days we associate fiat money with inflation. But the debasement of gold or silver coin also caused inflation. And sometimes the debasement was government action, the way printing money is government action. But sometimes it was not.

Sometimes the debasement was by the public. People did it, scraping a little gold off the edge of a coin before passing it on to the next guy. Today we worry about the government causing inflation. We forget that given the chance, people will also do things that cause inflation.

We forget that inflation may come from human nature.

If inflation is a natural result of human nature (and you can't change human nature) then the only way to avoid inflation is to put a device in the system to prevent it. That may be one reason many people support the gold standard. It's one reason that I do not totally reject the gold standard.

But that's not why I called this meeting.

Gresham's Law

This evening, the Wikipedia article Gresham's Law opens with this statement:

Gresham's law is commonly stated: "Bad money drives out good", but more accurately stated: "Bad money drives out good under legal tender laws".

Well, I never heard it put that way before. The "more accurate" version is probably a twist of history inserted by the Austrians. You have to be careful with the economics in Wikipedia. The Wik is full of Austrianisms made to look like part of mainstream thought.

I've heard the five words: Bad money drives out good. I came looking for more, because I wanted to know what Gresham meant. Not what somebody wanted to make it sound like.