"Bad money drives out good" is one of the oldest principles in economics, and one of the most frequently misapplied. The idea was described by the scholar Nicholas Oresme in the fourteenth century and by Copernicus in the sixteenth, but it takes its name from Sir Thomas Gresham, a financial agent of the English crown. The label itself was attached only in 1858, by the economist Henry Dunning Macleod.
The principle concerns coins whose metal is worth different amounts but which carry the same face value. Suppose a government issues new silver coins containing less silver than the old ones, while requiring that both be accepted as equal in payment. A sensible person spends the new, lighter coins and keeps the old, heavier ones, which are worth more as metal than as money. Before long, only the debased coins circulate.
The condition in that example is easy to overlook, yet the argument depends on it. Where no law forces sellers to accept both coins at the same value, sellers can simply insist on the better coin, or charge more for payment in the worse one. Under those circumstances, observers have noticed the opposite pattern, with good money displacing bad, a tendency sometimes called Thiers' law.
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