What is Gresham’s Law?

Stick your hand in your pocket, take out the change you find and put it on your desk.  Take a look at all of the coins spread out in front of you. Some of them are probably shiny pennies or dimes, some of them may be well-worn quarters. Some of you, for one reason or another, might even lay out a half-dollar on rare occasion. All of them in various states of age and wear, some of them possibly to the point of being barely discernible. Most likely, however, many of you find a lot of relatively new coinage, minted within the last several years, even though modern money has been printed and minted in this country for decades. Some of it can be attributed to certain pieces of money or notes being removed from circulation. Others can be considered the end result of coin collectors holding them without using them to their once-intended purpose. This latter part is a consequence due to a principle known as Gresham’s law.

Gresham’s law (not really a law) is a monetary principle that states at its basic level that “bad money will drive out good.” Well, what does that even mean? This principle doesn’t apply itself to counterfeit money. It doesn’t apply to money laundering. And it certainly doesn’t apply to some money taking the moral low ground in a disagreement. Legally speaking, all marked legal tender is worth the same. Every penny (as long as it can be recognized as a penny) is worth one cent, every dime worth ten, and so on and so forth. Nowadays, regarding practical, everyday use, most of us probably don’t even think to consider the actual metallic content of the money we hold as loose change in our pocket. Most of it is made from base metals such as copper, nickel, and zinc with silver and gold completely discontinued as far as general circulation is concerned.

You may ask yourself why this is, considering all recognized legal tender holds the same value in commerce anyway. Due to the intrinsic value of gold and silver as opposed to the likes of nickel and zinc, a coin with a high silver content such as a half-dollar from the mid-1960’s – despite being worth just as much as a half-dollar made today – has the potential to hold greater value strictly due to its higher-valued metallic composition. This is why coins of certain eras are now considered collectors’ items and not often seen in circulation; they have been in possession by those who put greater stock in their intrinsic value rather than their value purely as legal tender. This is why Gresham’s law applies, particularly in the United States where the metallic quality of legal tender has shifted over the past century to include less precious metals in the actual, handled currency such as silver and gold as well as make the process of manufacturing money more cost-effective in the first place by using more common materials. “The bad money drives out the good” applies to legal tender of a lesser standard (a la “cupro-nickel” alloys that comprise most American-minted coins) driving out legal tender of the same face value, but of a higher standard of metallic quality, such as older coins that tend to have a higher silver content or any gold content whatsoever. For more information visit: https://timothyabeel.com/lawyer/Pennsylvania-Lemon-Law-Attorney_cp10275.htm