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Permanent link for this word: Gresham's law

A.Word.A.Day--Gresham's law

Gresham's law (GRESH-ums law) noun

The theory that bad money drives good money out of circulation.

[Coined by economist Henry Dunning Macleod in 1858 after Sir Thomas Gresham (1519-1579), financier and founder of the Royal Exchange in London. Gresham, a financial adviser to Queen Elizabeth I, wrote to her "good and bad coin cannot circulate together."]

See more usage examples of Gresham%27s law in Vocabulary.com's dictionary.

Gresham's law says that when both are required to be accepted as legal tender, inferior money remains in circulation while the good money tends to be hoarded or exported.

Examples of bad money could be counterfeit notes, coins that have their edges scraped off to siphon precious metal, or two legal tenders where one is intrinsically superior (e.g. a gold coin vs. a paper note of the same face value). In general, the law applies to situations outside the financial world as well: for example, bad politicians drive out good ones.

"But the main blame for the debasement lies with the Tories, who have conclusively confirmed that there is a Gresham's law of politics: the most squalid party drags the others down towards its level." Roy Hattersley; Exploitation Dressed Up As Compassion; The Guardian (London, UK); May 2, 2005.

This week's theme: eponyms.

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