Gresham's law
The following economic principle is described as Gresham's (or Gresham's ) law , also known as Gresham- Copernican law : “If a government legally undervalues one type of money compared to another , the undervalued type of money will leave the country or be hoarded out of it Circulation disappear; the overrated type of money, however, will dominate the currency in circulation . ”The law was formulated in the 16th century by Thomas Gresham .
Currently the precious metal standards ( Silver Standard , Gold Standard ) was often observed that "bad money " (the precious metal content of unterwertiges money) the "good money" ousted from circulation if by the authorities a forced price for the ratio of " good ”to“ bad ”money. Bad money is overvalued because its face value is higher than the real value of precious metals. The law applies where the payer is free to choose whether he makes payments in good, valuable or bad, less valuable money, but the recipient must accept the bad money at the same rate as the good.
functionality
The functioning of Gresham's law can be seen e.g. For example, if a parity is legally fixed between two types of money (double currency; see bimetallism ) or even more pronounced if, in addition to full-fledged metal money, paper money with a compulsory exchange rate is also in circulation.
While the “poorer” money, which is cheaper in terms of metal value , is used as a means of payment for payment purposes, the more highly valued money often flows abroad or is not spent again in Switzerland for payment purposes after it has been received from circulation and is thus hoarded as a store of value . In many cases, “good money” is kept for as long as possible because a future appreciation of the more highly valued money is expected and corresponding profits can then be realized. It disappears from the circulation of money . In times of crisis, however, these hoarded money tokens can at least partially reappear for payment purposes or as "exchange objects", only to be hoarded again by other speculators.
This mechanism of Gresham's Law can only come into force if the debtor or buyer can even make a choice as to which type of money (e.g. gold or paper money, Kurant coins or cutting coins ) to settle an open account or a purchased product can pay.
Furthermore, if goods are cheaper abroad than at home and foreign money is accepted there, the domestic, own, if possible “cheaper” money flows there until a balance is achieved through foreign price increases or tariff levies, etc. or has stopped domestic price cuts.
Even today, in the age of pure fiat money currencies , Gresham's law is still in effect when, for example, inflation causes the nominal value of the smallest, base coins in circulation to fall below their actual material value, whereby the original total production costs of the coin are irrelevant. These base coins in circulation are then taken out of circulation by private individuals and, if necessary, even used as raw materials for products - unless the state collects and calls them beforehand or issues coins with smaller dimensions and cheaper materials. Some countries, e.g. B. the USA, therefore, have prohibited the use of coins for purposes other than payment under penalty of law.
history
The name Gresham's Law goes back to Sir Thomas Gresham (1519–1579), who was an advisor to the English monarch and founder of the London Stock Exchange in the Elizabethan era . Even at the time of Gresham's birth, Nicolaus Copernicus , in his capacity as Prussian canon, was already formulating the problem in his memoranda on coinage . Independently of this, the regularity was formulated around 150 years later by the Japanese Confucian scholar Arai Hakuseki .
Even Aristophanes , however, can in his comedy The Frogs choir leader to preferably use made of poor foreign coin against the local coin despite their recognized better advantage criticize and compare with the preference of the villains from the stranger in front of well-educated local citizens. Nevertheless, this remains an observation of a conspicuous behavior, which is denounced as foolish.
Scope of the law
Gresham conducted his research at a time when creditors (sellers) were forced by law to accept bad money at the rate or price set by law. However, if all economic operators are allowed to decide how they want to be paid, the good money will quickly crowd out the bad, since no one willingly accepts the bad money at the price of the good money.
In a saturated market , it is not the seller who decides what to get, but the customer who decides what to give. The seller can either accept the bad money from the customer and thus generate sales, or he can do without and the customer looks for another supplier who would rather accept the bad money than make no sales at all.
There are also cases in which Gresham's Law came into effect without government coercion. The successful Dutch Baltic Sea trade meant that the Albertustaler, originally from the Spanish Netherlands , became very popular as a trade coin in the Baltic Sea region in the 17th century . This popularity was reflected in the fact that sellers in the Baltic Sea region also accepted the same amount of Albertus thalers for a price specified in (imperial) thalers. A fully minted Reichstaler contains 25.98 g of fine silver , an Albertus thaler only 24.65 g. In several importing countries of products from the Baltic Sea region, Albertus thalers were increasingly minted in order to buy in the Eastern trade (including in the royal Danish mint at Altona ).
A variant of Gresham's law is the theory of the Market for Lemons by George A. Akerlof . Here the bad cars displace the good ones on the used car market.
See also
Web links
- Jutta Hoffritz: It's pointless to bite. Article in Die Zeit , No. 2, January 3, 2002.
Individual evidence
- ^ Murray N. Rothbard : Commodity Money in Colonial America. In: mises institute
- ^ Friedrich August von Hayek : Denationalization of Money. (PDF; 12.5 MB). Institute of Economic Affairs , London 1976, p. 42.
- ↑ Aristophanes: The Complete Comedies. II. Volume. Artemis Verlag, Zurich / Stuttgart 1968, p. 547 f. (The frogs. Third scene) ; see. Rudolf Hilferding : Finance Capital. 2nd edition. Verlag der Wiener Volksbuchhandlung, Vienna 1920, p. 42 f.
- ↑ Friedrich Frhr. v. Schrötter (1970) Dictionary of Coin Studies. de Gruyter, Berlin. Second, unchanged edition. P. 18