Gresham's Law

Gresham's law is the observation that bad money drives out good: when two forms of money circulate at a fixed legal exchange rate, people spend the overvalued form and hoard the undervalued one. It is named for Sir Thomas Gresham, a 16th century English financier who advised Queen Elizabeth I, though the pattern was described by earlier writers, including Copernicus in 1526.

Why it matters

The law explains why sound coinage vanishes whenever governments debase currency but force both versions to trade at par. A clean modern example is the United States Coinage Act of 1965, which removed silver from dimes and quarters. Within a few years, the 90% silver coins had almost entirely disappeared from circulation as the public pulled them into drawers and safes, leaving only the copper-nickel replacements to change hands.

The mechanism requires a fixed rate, usually imposed by legal tender law. Without one, the dynamic can reverse: merchants simply refuse the weaker money, a pattern known as Thiers' law that appears during hyperinflations.

In the gold vs bitcoin debate

Both gold and bitcoin behave as the hoarded good money in a Gresham framework. Gold left everyday circulation decades ago and sits in vaults, while surveys of bitcoin activity consistently show a large share of supply held long term rather than spent. Bitcoiners describe this as rational saving in the hardest available asset, and note that people everywhere spend their depreciating fiat first, exactly as Gresham predicted.