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After the Great Debasement, 1544-51: did Gresham’s Law apply?

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  • Li, Ling-Fan
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    In England, across the whole period of the Great Debasement, the mint issued six different kinds of silver coins and three kinds of gold coins. According to Gresham’s Law, coins with the same face value but different intrinsic values can not circulate side by side for too long: only those coins with lower intrinsic values stay in circulation; those with relatively high intrinsic values would be hoarded, exported, or melted down. Neither contemporary sources nor modern research about the disappearance of good money over this period has provided any solid quantitative assessment of the effectiveness of Gresham’s Law. This paper intends to produce such an assessment. For this purpose, two types of evidence are examined: the composition of the re-coinage of 1560, and the trend of the exchange rate. The result shows that contrary to popular belief, Gresham’s Law was rather ineffective in mid-sixteenth-century England.

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    Paper provided by London School of Economics and Political Science, Department of Economic History in its series Economic History Working Papers with number 27874.

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    Length: 41 pages
    Date of creation: Oct 2009
    Handle: RePEc:ehl:wpaper:27874
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    LSE, Dept. of Economic History Houghton Street London, WC2A 2AE, U.K.

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    1. Rolnick, Arthur J & Weber, Warren E, 1986. "Gresham's Law or Gresham's Fallacy?," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 185-199, February.
    2. ANDREW M. WATSON & Jacques Coeur, 1967. "Back to Gold — and Silver," Economic History Review, Economic History Society, vol. 20(1), pages 1-34, April.
    3. François R. Velde & Warren E. Weber & Randall Wright, 1999. "A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 291-323, January.
    4. Volckart, Oliver, 2008. "‘The big problem of the petty coins’, and how it could be solved in the late Middle Ages," Economic History Working Papers 22310, London School of Economics and Political Science, Department of Economic History.
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    6. Selgin, George, 1996. "Salvaging Gresham's Law: The Good, the Bad, and the Illegal," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 637-649, November.
    7. C. E. Challis, 1967. "The Debasement of the Coinage, 1542-1551," Economic History Review, Economic History Society, vol. 20(3), pages 441-455, December.
    8. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    9. T. H. Lloyd, 2000. "Early Elizabethan investigations into exchange and the value of sterling, 1558-1568," Economic History Review, Economic History Society, vol. 53(1), pages 60-83, February.
    10. Greenfield, Robin L & Rockoff, Hugh, 1995. "Gresham's Law in Nineteenth-Century America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1086-1098, November.
    11. Lawrence Stone, 1949. "Elizabethan Overseas Trade," Economic History Review, Economic History Society, vol. 2(1), pages 30-58, August.
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