Page:The Economic Journal Volume 1.djvu/326



is a good deal of misunderstanding of the real law as to bad money 'driving out' good, and an overrated metal in a bimetallic system 'driving out' the underrated metal, which is commonly spoken of as the Gresham Law. It is assumed that the money driven out must be physically driven out of the country, i.e. exported, and this export is regarded as a fundamental part of the Gresham Law.

In point of fact Sir Thomas Gresham is only responsible for the suggestion that bad coins, i.e. worn and deteriorated coins, drive good ones of the same metal out of circulation. Export is, no doubt, specially referred to as the usual effect of such driving out, as it was no doubt the usual consequence in circumstances such as those Sir Thomas Gresham dealt with. But the 'law' was only an observation that it is difficult, if not impossible, for good and bad coins of the same metal to circulate together, and the good coins are selected for exportation when a demand for exportation arises. The export is not a necessary part of the 'law.'

In point of fact, also, good and bad coins will circulate together in a given country as if they were all good when the circulation itself is not in excess of the demand for it. We have many good and bad sovereigns circulating together now in England.

Sir Thomas Gresham made no reference at all to what happens in a bimetallic system or in the analogous case of inconvertible paper when the paper drives the metal out of circulation. Nor are these last cases quite on all fours with those Sir Thomas Gresham referred to. In the case where bad coins drive out good coins of the same metal, the good and bad coins are both doing the same work; so the good are driven out of circulation when there is a surplus because they are more useful for other purposes than the bad, containing more of the metal. When it is a question,