Gresham's Law Regained

Abstract

It has been argued that Gresham's Law, bad money (money with a low value in non-monetary uses) drives out good, often fails because one money can circulate at its market value. Various cases involving the U.S. dollar in the nineteenth century have been cited as possible violations of the law resulting from nonpar circulation of the dollar. This paper analyzes these cases, and finds to the contrary that a 93 percent version of Gresham's law held in all them. Evidently, there were high transactions costs associated with using good money at a premium or bad money at a discount.