Uses and Abuses of Gresham"s Law in the History of Money

Introduction
The economist H. D. Macleod, writing in 1858, first brought attention to the law that he named after Sir Thomas Gresham:
No sooner had Queen Elizabeth ascended the throne, than she turned her attention to the state of the currency, being moved thereto by the illustrious Gresham, who has the great merit of being as far as we can discover, the first who discerned the great fundamental law of the currency, that good and bad money cannot circulate together. The fact had been repeatedly observed before, as we have seen, but no one, that we are aware, had discovered the necessary relation between the facts, before Sir Thomas Gresham.
This passage errs in two points: Gresham was not the first to make explicit the idea we now know as "Gresham's Law," and the assertion that "good and bad money cannot circulate together" is a glaring error. It is a far cry from Gresham's Law. That Macleod was careless about his statement of the law he named after Gresham serves as a warning that the ideas involved are more subtle than at first appears.
1. Early Expressions
2. Faulty Renderings
3. Good Money Drives out Bad?
4. Cheap Drives out Dear if They Exchange for the Same Price
5. The Replacement of Gold by Credit or Paper Money
6. The Theory of the Breaking Point
7. Richard's Ransom
8. The Great Recoinage
9. Gresham's Law Under Bimetallism
10. Overvalued Money and the Institution of Legal Tender
11. The Evidence of Hoards
12. Conclusions
Gresham's Law, properly understood, can be a powerful tool in the hands of historians for the study of monetary history. The catchy phrase, "bad money drives out good," is not a correct statement of Gresham's Law nor is it a correct empirical assertion. Throughout history, the opposite has been the case. The laws of competition and efficiency ensure that "good money drives out bad." The great international currencies--shekels, darics, drachmas, staters, solidi, dinars, ducats, deniers, livres, pounds, dollars--have always been "good" not "bad" money.
Gresham's Law comes into play only if the "good" and "bad" exchange for the same price. "Good money drives out bad if they exchange for the same price" is an acceptable expression of Gresham's Law. But a better statement of it is that "Cheap money drives out dear, if they exchange for the same price." Put in this way, Gresham's Law becomes a theorem of the general law of economy, a consequence of the theory of rational economic behavior.

BIBLIOGRAPHY
Andréadès, A. 1966. History of the Bank of England. London: Cass.
Arnott, Peter D. 1961. Three Greek Plays for the Theatre. Bloomington: Indiana University Press.
Baldassarri, Mario, McCallum, John and Robert Mundell, eds. 1992. Global Disequilibrium in the World Economy: Central Issues in Contemporary Economic Theory and Policy. London: St. Martin's Press/SIPI.