Talk:Gresham's Law

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[edit] Law applied elsewhere

What does mean bad money in this context? --Anonymous

In the context of the Wikipedia itself, Gresham's law says that bad contributors (or contributions) will tend to drive out good contributors (or contributions), and we have seen it in operation in two ways: Sometimes the actions of a bad user actually cause a good user to stop using the 'pedia at all. Other times, the actions of a bad user cause a good user to waste time fixing the damage the bad user has done (and/or discussing the bad user's actions), thus reducing the amount of new material the good user can produce. Either way, the bad use tends to drive out good use. (I suggest there's a lesson here for good users in deciding how to spend their time on the 'pedia.) --isis 20:35 Nov 26, 2002 (UTC)
And yet, there must be some sort of break or flaw in the analogy, since manifestly the bad users are not driving out the good on Wikipedia (as I from the perspective of several years later can affirm). --maru 16:09, 13 May 2005 (UTC)
There isn't any equivalent of legal-tender laws on Wikipedia, though -- we are not required to treat bad contributions as equal to good ones. --FOo 01:42, 30 May 2005 (UTC)

[edit] Arbitrage

In the described situation of gold and fake coins, why would people take the gold coins, melt them down, and sell the gold? They will only get one pound for it, because that's what the gold is worth, and one pound they had to begin with. --AxelBoldt 20:58 Nov 26, 2002 (UTC)

They may sell the gold in another country -- when English coins were debased, they were mostly selling the gold in the Lowlands -- but the point is that selling a gold coin for a pound is better than spending a gold coin for a pound's worth of goods that you can buy for a fake gold coin worth much less than a pound. Try to think of it as arbitrage. --isis 21:27 Nov 26, 2002 (UTC)
Well, I realize that I'm a bit dense here, but "selling a gold coin for a pound" doesn't make any sense: either you get a true gold pound for your gold coin, which is what you had to begin with, or you get a fake pound, in which case you have made a bad deal. --AxelBoldt 03:49 Nov 27, 2002 (UTC)
The choice is not between selling a gold coin for a true pound coin and selling it for a fake pound coin. The choice is between getting its true (= face) value for it and getting the value of a fake one for it. Assume a "bad" coin is worth 50% of a "good" one, and you have five of each: The number of bad coins in circulation has forced merchants to double their prices, so you can spend all 10 of your coins here and get only £5 of goods, or you can spend the 5 bad ones here for £2.5 of goods and spend the 5 good ones in the Netherlands for £5-worth of goods, so you get a total of £7.5 of goods for your 10 coins (which is how much your coins are actually worth in terms of their gold content). (I'm leaving out the step where you actually sell the good ones there as bullion and spend the guilders here at their full value.) The point of Gresham's law is that everyone with sense will spend the bad ones here and the good ones there, so having bad ones in circulation here will drive the good ones out of circulation here and into circulation there. I'm sorry, but I don't know how to explain it any better than that. --isis 07:15 Nov 27, 2002 (UTC)

[edit] Bad comparison?

I removed this passage from the article:

Philosophically, Gresham's law is related to the Tragedy of the commons in that both refer to a situation where the interests of individuals, collectively, tend to destroy the value of a public resource unless some regulatory power intervenes.

I think this is a misleading parallel. The key point in Gresham's law is that some regulatory power - the government or whoever - decrees that two items of different value ('good' and 'bad' coins, diplomas, etc.) can be used interchangeably. Gresham's law can in fact be reversed by removing the intervention of the regulator - in which case the 'good' coins would drive out the worthless 'bad' coins.

Furthermore, a gold coin is not a public resource in the economic sense - it is generally owned and enjoyed by one person only! The tragedy of the commons is a rather different idea that applies to shared resources. --Enchanter

You are mistaken about this -- "the government or whoever" has not decreed that good and bad ones are interchangeable. The people who make counterfeit coins are criminals the government prosecutes, for example, and if you remove the regulator (= the mint) from the system, there will be no good coins at all, only bad ones. And the coinage system is, indeed, a public resource. But I have no interest in trying to persuade you that Gresham's law is true and you simply don't understand it, and I'm posting this here merely to keep other people from being misled by your confusion. --isis 23:34 Nov 26, 2002 (UTC)
In response, I would like to make a couple of points:
  • It is important to Gresham's law that some authority declares the 'good' and 'bad' currency to be of equal value. It is not the case that people can't tell the good coins from the bad - for Gresham's law to hold people must be able to distinguish them so that they know which ones to spend and which to hoard and melt down. If the coins were not declared by law to be of equal value, traders could - and would - refuse to be paid with the 'bad' coins and only accept the 'good' ones, invalidating the law. It is because the law says that bad coins can be used instead of good ones, for example to settle debts, that the bad coins retain their value.
  • Gresham's law doesn't just apply to counterfeit currency; the 'bad' coins might have been issued by government (this was relevant in Gresham's day, when treasuries would issue coins with lower gold content in order to boost revenue), or a 'bimetallic' system where, for example, ten silver coins are worth the same as one gold at face value but the value of the metal is different. The article could do with some clarification here. --Enchanter


[edit] Historical example

This page was turning into a tirade against legal tender laws, and its logic was becoming badly distorted. I have removed the POV tone and moved material around to make the logic flow better. I have also completely taken out the following passage, which had been added as a comment on Gresham's Law in reverse. It completely misses the point that was being made, and makes no sense in that context, or anywhere else in the article.

However, the US Dollar was clearly considered to be a more stable currency, and despite being illegal in some cases, still more desirable than that of the collapsed Soviet Union or South American countries suffering from severe inflation or economic downturns. Here the issue of context is raised again, since there is considerable difficulty comparing the two currencies while one is in the process of collapsing. It shows, however, that Gresham's law does not apply when people must make a choice between breaking legal tender law or feeding themselves. It seems that legal tender law does not trump survival.

Finally, someone needs to look up apostrophe - "it's" means "it is" not "of it". And, Enchanter, could you date your comments, please? It happens automatically if you just put ~~~~ at the end of your text. Thanks. --seglea 19:14, 6 Sep 2004 (UTC)


[edit] Terminology

Seglea, thanks for your edits. They are a significant improvement on my additions. The article is now considerably tighter then I left it and you have removed the rambling that I am occasionaly prone to when tired. Your NPOV considerations are very good, and I think you were fully justified making your deletions.

One issue I do want to raise is where you substituted "coins" for "money" in one or two places. I see that it may be more grammatically and cohesively correct to make such a change, but Gresham's Law isn't about coinage in particular, but money in general. References to "'good' money" and "'bad' money", in the article, may need to remain that way. Editing them to "'good' coins" and "'bad' coins" in every instance where coins are used as an example does not seem appropriate in this particular article.

Something I have looked at today, which you may wish to review -- I have altered is the definitions of good and bad money. I think that they are clearer now, but may still need some thought.

Also, your comments on the apostrophe are welcome, but again, it is an error I tend to make when I am tired, and has nothing to do with failing to understand the meaning. --Octothorn 05:57, 15 Sep 2004 (UTC)

Octothorn, sorry, I've been off the air for a while and hadn't seen the comments above. Meanwhile, there's been quite a bit more work on this, and I'm not sure I can trace the history. However, I fully agree about the generality of the argument - it is certainly not only about coins (it would be fun to test Gresham's law in a prison with a cigarette currency functioning), though it does only apply to commodity moneys (we really need to refer to the articles on commodity money and fiat money).
I've removed the following passage, because it just duplicates the bit that comes a few lines down, which is a more modern and therefore perhaps more persuasive example:
Astute readers will notice that there is a third option, money where the market value is significantly higher than the Legal Tender imposed exchange value. However, this is only a theoretical possibility, since in practice money that is made to exchange for significantly less than its market value will disappear. One example of this occurring was in the late 1700s when the full-weight silver US dollar was initially circulated alongside the well-worn Spanish 8 Reale, exchanging one for one at the US mint. The worn 8 Reale coins had exchange value of only a little above their bullion value, so the US Dollar was made to circulate at significantly above bullion value. The result was that the silver dollars were melted down and sold as bullion. This also happens when the price of the material that the money is made from rises above the fiat exchange value of the coins.
I'm doing a bit more tidying up, too, but please reverse me if you disagree; this article is improving through successive edits and the interplay of different perspectives. --seglea 22:21, 12 Oct 2004 (UTC)

[edit] Why US Half-Dollar Example?

When the US half-dollar was reduced in silver content, the quarter and the dime were both similarly reduced at the same time. The difference? Nobody uses half-dollars of any kind in this country anymore. A better example would be to say that the old pre-1965 quarters and dimes are no longer seen much in circulation, because half-dollars of any age are not usually seen anyhow unless you're a collector. --Lurlock 14:23, 29 June 2006 (UTC)

[edit] First-formulated-by Claims

I removed the uncited statement that This law was first formulated by Nicolaus Copernicus.[citation needed] The History section of the article refutes that Copernicus was first. Copernicus did precede Gresham, but NC was not first. As for the citation requested (in the general sense)? There are two citations already quoted in the article which indicate that Gresham was not the first to discuss the concept, even though the idea is now eponomously named for him. One that I am familiar with is Spiegel. The other, claimed within the text of the article by another WP editor, with extensive quotations, is Selgin. Enjoy. N2e 23:06, 10 October 2006 (UTC)

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