Front Page Titles (by Subject) Gresham\'s Law. - Money and the Mechanism of Exchange
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Gresham's Law. - William Stanley Jevons, Money and the Mechanism of Exchange 
Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).
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Though the public generally do not discriminate between coins and coins, provided there is an apparent similarity, a small class of money-changers, bullion-dealers, bankers, or goldsmiths make it their business to be acquainted with such differences, and know how to derive a profit from them. These are the people who frequently uncoin money, either by melting it, or by exporting it to countries where it is sooner or later melted. Some coins are sunk in the sea or lost, and some are carried abroad by emigrants and travellers who do not look closely to the metallic value of the money. But by far the greatest part of the standard coinage is removed from circulation by people who know that they shall gain by choosing for this purpose the new heavy coins most recently issued from the mint. Hence arises the practice, extensively carried on in the present day in England, of picking and culling, or, as another technical expression is, garbling the coinage, devoting the good new coins to the melting-pot, and passing the old worn coins into circulation again on every suitable opportunity.
From these considerations we readily learn the truth and importance of a general law or principle concerning the circulation of money, which Mr. Macleod has very appropriately named the Law or Theorem of Gresham, after Sir Thomas Gresham, who clearly perceived its truth three centuries ago. This law, briefly expressed, is that bad money drives out good money, but that good money cannot drive out bad money. At first sight there may seem to be something paradoxical in the fact, that when beautiful new coins of full weight are issued from the mint, the people still continue to circulate, in preference, the old depreciated ones. Many well-intentioned efforts to reform a currency have thus been frustrated, to the great cost of states, and the perplexity of statesmen who had not studied the principles of monetary science.
In all other matters everybody is led by self-interest to choose the better and reject the worse; but in the case of money, it would seem as if they paradoxically retain the worse and get rid of the better. The explanation is very simple. The people, as a general rule, do not reject the better, but pass from hand to hand indifferently the heavy and the light coins, because their only use for the coin is as a medium of exchange. It is those who are going to melt, export, hoard, or dissolve the coins of the realm, or convert them into jewellery and gold leaf, who carefully select for their purposes the new heavy coins.
Gresham's law alone furnishes a sufficient refutation of Mr. Herbert Spencer's doctrine, already noticed (p. 64) that money ought to be provided by private manufacturers. People who want furniture, or books, or clothes, may be trusted to select the best which they can afford, because they are going to keep and use these articles; but with money it is just the opposite. Money is made to go. They want coin, not to keep it in their own pockets, but to pass it off into their neighbour's pockets; and the worse the money which they can get their neighbours to accept, the greater the profit to themselves. Thus there is a natural tendency to the depreciation of the metallic currency, which can only be prevented by the constant supervision of the state.
From Gresham's law we may infer the necessity of two precautions in the regulation of the currency. In the first place, the standard coins, as issued from the mint, should be as nearly as possible of the standard weight, otherwise the difference will form a profit for the bullion-broker and exporter. In the second place, adequate measures must be taken for withdrawing from circulation all coins which are worn below the least legal weight, otherwise they will continue to circulate as token coins for an indefinite length of time. All commerce consists in the exchange of commodities of equal value, and the principal money should consist of pieces of metal so nearly equal in metallic contents, that all persons, including bullion dealers, bankers, and other professed dealers in money, will indifferently substitute one coin for another. But it is obvious that these remarks do not apply to coins intended to serve as tokens, since the current value of tokens exceeds their metallic value, and every one who uses them otherwise than in ordinary circulation will lose the difference. Hence the weight of a token coin is comparatively a matter of indifference, so long as people will receive them, and the deficiency of weight is not too great a temptation to the false coiner.
In England at the present day the force of habit, and the absence of means of discrimination, lead to the depreciation of our gold standard coinage by abrasion. Only while a sovereign exceeds 122.5 grains in weight is it legally a sovereign; but people go on paying and receiving indifferently, in ordinary trade, sovereigns of which the metallic values differ 2d. or 4d., and sometimes even 6d. or 8d. Every standard coin thus tends to degenerate into a token coin, and such a coin can only be withdrawn from circulation by the state.