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Gresham's Law is frequently misunderstood. It's not accurate to say that "bad" drives out "good" in a literal sense. It's more like "less desirable" driving "mo

Gresham's Law is frequently misunderstood. It's not accurate to say that "bad" drives out "good" in a literal sense. It's more like "less desirable" driving "more desirable" out of circulation. The "more desirable" is highly valued, not competed out of existence. It's just not in circulation. In the case of coinage, gold coins are not in circulation. But they are still more valuable than other types of coins. A monetary system usually consists of both "less desirable" money (e.g. paper money) and "more desirable" money (e.g. gold, Bitcoin). I explain the law in the context of Bitcoin and fiat in this article: https://bitflate.org/post/2019/11/24/bitcoin-will-not-be-a-medium-of-exchange.html https://bitflate.org/post/2019/11/24/bitcoin-will-not-be-a-m... If we have a system where "bad" drives "good" out of existence (not circulation), then the system will surely have problems.

phoe-krk 6y ago
In other words: Gresham's law doesn't make the "good" disappear altogether. It makes the "good" hoarded and kept instead of passed around, which prevents the "good" from being exchanged between people - or, in other words, removes it from circulation.
- RobertoG 6y ago
  >> "[..] in other words, removes it from circulation." And that makes it useless as money and show that, the added value, was not necessary for a practical currency in the first place.
- TeMPOraL 6y ago
  This situation is just a special case, in which it's possible for the "good" thing to survive without being actively circulated. It may work for "gold as a store of value", because gold's value is based on scarcity and tradition. It doesn't work for other things. Gresham's law does boil to natural selection: if you iterate a system that selectively prefers one thing over the other, the preferred thing will survive. The preferred thing is usually one that's cheaper in some sense - monetary, energetically, or ethically. (WRT. bitcoin, I don't think it's a case of "bad" fiat "driving out good" bitcoin, but more of bad bitcoin failing to compete with better fiat.)

phoe-krk 6y ago

In other words: Gresham's law doesn't make the "good" disappear altogether. It makes the "good" hoarded and kept instead of passed around, which prevents the "good" from being exchanged between people - or, in other words, removes it from circulation.

RobertoG 6y ago
>> "[..] in other words, removes it from circulation." And that makes it useless as money and show that, the added value, was not necessary for a practical currency in the first place.
TeMPOraL 6y ago
This situation is just a special case, in which it's possible for the "good" thing to survive without being actively circulated. It may work for "gold as a store of value", because gold's value is based on scarcity and tradition. It doesn't work for other things. Gresham's law does boil to natural selection: if you iterate a system that selectively prefers one thing over the other, the preferred thing will survive. The preferred thing is usually one that's cheaper in some sense - monetary, energetically, or ethically. (WRT. bitcoin, I don't think it's a case of "bad" fiat "driving out good" bitcoin, but more of bad bitcoin failing to compete with better fiat.)