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Gresham's law or Gresham's fallacy?

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Author Info
Arthur J. Rolnick
Warren E. Weber
Abstract

In this article, the authors argue the answer to their title depends on whether a qualifier is added to the standard version of the law that "bad money drives out good." By examining several historical episodes, they find instances where bad money (valued more at the mint than in the market) failed to drive out good money (valued less at the mint than in the market). Rolnick and Weber next explain why the common qualifier to this law, which requires the mint to fix the rate of exchange at face value, does not reinstate the law. The common qualifier fails to give plausible reasons for how the mint price of money can coexist with a different market price. They then propose a new qualifier to Gresham's Law and argue its validity: bad money drives out good only when there are significant costs to using the good money at a premium.

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Publisher Info
Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1986)
Issue (Month): Win ()
Pages: 17-24
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Handle: RePEc:fip:fedmqr:y:1986:i:win:p:17-24:n:v.10no.1

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Keywords: Money ; Gresham's law;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John H. Munro, 2009. "Coinage and Monetary Policies in Burgundian Flanders during the late-medieval 'Bullion Famines',. 1384 - 1482," Working Papers tecipa-361, University of Toronto, Department of Economics. [Downloadable!]
  2. Gerald Caprio & Michael Dooley & Danny Leipziger & Carl Walsh, 1996. "The lender of last resort function under a currency board: The case of Argentina," Open Economies Review, Springer, vol. 7(1), pages 625-650, March. [Downloadable!] (restricted)
    Other versions:
  3. Y.-Y. Kim, 2004. "Gresham's law in the late Chosun Korea," Applied Economics Letters, Taylor and Francis Journals, vol. 11(15), pages 979-984, December. [Downloadable!] (restricted)
  4. Lorenzo Bini-Smaghi & Silvia Vori, 1993. "Is there a “triffin dilemma†for the EMS?," Open Economies Review, Springer, vol. 4(2), pages 175-188, June. [Downloadable!] (restricted)
  5. Francois R. Velde & Warren E. Weber & Randall Wright, 1997. "A model of commodity money, with applications to Gresham's law and the debasement puzzle," Staff Report 215, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  6. Jon R. Moen & Ellis W. Tallman, 2003. "New York and the politics of central banks, 1781 to the Federal Reserve Act," Working Paper 2003-42, Federal Reserve Bank of Atlanta. [Downloadable!]
  7. 2006433-451, 2006. "Benjamin Franklin and Colonial Money: A Reply to Michener and Wright—Yet Again," Econ Journal Watch, Atlas Economic Research Foundation, vol. 3(3), pages 484-510, September. [Downloadable!]
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