Gresham's Law in Nineteenth-Century America

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Ohio State University Press is collaborating with JSTOR to digitize, preserve and extend access to Journal of Money, Credit and Banking. FOR ALMOST AS LONG as money has been the object of systematic study, Gresham's law bad money drives out good has been recognized as one of money's governing principles. Now, however, doubts have arisen concerning the validity of this venerable principle. In their provocative, theoretical reappraisal of Gresham's law, Rolnick and Weber (1986) maintain that bad money and good money will typically circulate together, bad money at its face value and good money at a price exceeding its face value. Bad money, they say, rather than driving good money out, drives it to a premium. This paper examines the leading cases in nineteenth-century U.S . monetary history, looking for evidence of cocirculation. No such evidence appears. Money circulated by tale, not weight.

Government transaction policy and Gresham's law

“…However, as more gold discoveries in the late 1840s and early 1850s increased the market value of silver dollars from its intrinsic content, gold became dominant circulating medium. The predictions of this paper are consistent with the observations in Greenfield and Rockoff (1995): if government exchange rate policy does not result in too big a difference in the mint ratio and market ratio, both coins circulate. As the policy makes a money too valuable to be used as a medium of exchange (such as silver dollar of the late 1840s in the example), it will be hoarded from circulation.…”

“…One can use such model to discuss how recoinage policy affects the frequency of trade, the price level, and the role of government in providing sufficient intermediation to facilitate trade. Greenfield and Rockoff (1995) describe a historical example in which government's manipulation of the official exchange rate (the mint ratio) affected the market ratio and circulation of coins. In the early 19th century of U.S., gold was undervalued at the mint given the prevailing market prices (so it was good money).…”

A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle

“…We thank Arthur Fishman, Angela Redish, Thomas Sargent, Theodosios Temzelides, and seminar participants at the Federal Reserve Banks of Minneapolis and Philadelphia, the Penn Macro Lunch Group, the Universities of Chicago, Essex, Cambridge and Haifa, and the 1996 SEDC conference in Mexico City.1 Moreover, its empirical validity is questionable, or at least seems to depend on circumstances. Laughlin (1903,, describes a variety of instances in which Gresham's Law appears to work, while Rolnick and Weber (1986) describe several examples that seem to violate it, although Greenfield and Rockoff (1995) dispute these examples. De Roover (1949, 93) discusses the misattribution of the Law to the 16th century English banker Thomas Gresham, and remarks: "Gresham, consequently, does not state that bad money necessarily drives out good.…”

Some Notes on the Gresham's Law of Money Circulation

“…Weber of the Federal Reserve bank of Minneapolis, neither of the versions, the popular and the qualified, is adequate to answer the question about silver dollars. The short popular version is contradicted by several historical facts, where the authors find that bad money failed to drive out good money (however in [32], Greenfield and Rockoff dispute these examples). Moreover, in [31], it is told that the qualified version of the law, as given in Ref.…”