Gresham's Law means quite simply "bad money drives out good". Most people don't know that dozens of countries Fiat currencies have crashed, collapsed or hyperinflated over the years and all seem to have a limited lifespan before eventually collapsing.
Many people think that money, as we know it, this paper stuff is somehow tied to something that has value. Like Gold. And that paper money is just a contract of the gold that exists somewhere. Absolutely not true. In fact the USA completely abandoned the "Gold Standard" as it is called back in 1971. So the value of money is whatever you think it is worth. There are many examples when citizens lost confidence in money to the point of literally needing a wheelbarrow of currency to buy a loaf of bread. Germany hyperinflation was certainly bad at 29,500% but the top winner for inflation was Hungary with a 41.9,000,000,000,000,000,000% inflation rate back in 1946 with prices literally doubling every 15 hours.

Way back in 1933 President Hoover said "We have gold because we can't trust governments" - Gold as a standard acts as a limiting mechanism that prevents governments from just printing money, which is basically what the US Government is doing endlessly with quantitative easing. And what other countries have done with disastrous consequences. Yes, we have the world's reserve currency that shores up the US dollar but there have been multiple global reserve currencies throughout history. All had limited lifespans and eventually died.
Sir Thomas Gresham was an English financier back in the mid 1500's. He made the observation that "bad money drives out good".
So what is "good money"?. Good money is money that shows little to no difference between its commodity value, which is the value of the stuff the money is actually made from, and it's nominal value, which is what the currency suggests it is worth by it's face value. So in the case of our paper money what is the actual value of this piece of paper? Fractions of a penny. It is only because we all agree and trust the government that this piece of paper is worth anything.
But it wasn't always that way. At the birth of the USA back in 1792 the US mint was established and minted coins that were made of silver. That continued with various concentrations of silver up until 1965 when all silver content was removed from nickels and dimes through passage of the coinage act.
People eventually realized the actual value of the silver in US circulated coins (the commodity value) was worth more than it's nominal value. So people started to hoard any pre 1965 coins that were known to have silver content and today you almost never see these coins in circulation. If you do, hold on to them because they are worth many times more than their actual face value. Many people today who worry paper currency could become worthless buy bags of the old silver coinage which is called "junk silver" as an investment. In 2018 $500 face value of silver dimes cost $5,500 Today those same dimes cost over $16,000 and that is if you can find them as most places are completely sold out. This is a great example of Gresham's Law where $500 of silver dimes today cost over $16,000 and people are hoarding them. "bad money drives out good"
So the question is if our own currency value continues to erode through inflation will we see people starting to hoard pennies for the copper value? Already happening. Canada actually stopped making pennies years ago likely for that very reason. And coin content has changed over time to keep ahead of Gresham's law. For example pennies in the US were made of 95% copper until 1982, 1983 pennies were 97% zinc and plated with a thin copper coating. This made sense because as the value of the copper went up, anyone could simply buy the pennies and hoard them or even melt them and make a profit because Gresham's law always drives good money underground. The USA actually loses millions making the penny as it costs almost two cents to produce, and that number is likely to increase as inflation continues. In fact even now you can purchase a machine from Ryedale enterprises that will automatically sort your pre 1982 copper pennies from the zinc ones in bulk. So you could technically go to the bank get $100.00 worth of pennies, double your money on the copper pennies as currently the copper value is about 2 cents. Roll up and return the non coppers and get another $100.00 and repeat. Obviously copper prices are too low now and the dollar is still strong enough that this would be too much work for too little money. But that situation could change. A great website to check the actual commodity value of the coins in your pocket is coinflation.com. They give the current metal value vs nominal value of all coins.
So what can we learn from Gresham's law? Well one of the things is that Fiat currency eventually becomes worth just the paper it's printed on. Could we be headed to the same fate?
#franchisecity