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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