Bob,
Let's say you had a gold coin in your pocket and a silver coin in your pocket, both with a face value of $1. The gold coin has a bullion content of $1.00 and the silver coin has a bullion content of $.90, which one would you get rid of when you went to spend you next dollar ?? The silver one, although it has the same face value, EVERYONE knows it has a lower instinsic value. As a result subsidiary silver coinage diappeared from circulation several times in the 19th century. Folks did not want silver coinage, and the bimetallic standard died.
But spending the silver is precisely what circulation is!
If I perceive a difference in value between two things that can both buy something, I spend or circulate the one of perceived lower value and I hoard or save the one of perceived higher value. These are both functions of money. As long as the low valued money is still accepted, because of legal tender laws, for example, it will remain in circulation. Money disappears if it is profitable to melt it down or if it is worth more on foreign markets.
As long as the mint is willing to turn my low valued silver bullion into legal tender coins worth face value, I'll send it all I've got and it won't disappear for lack of supply either.
Gresham's Law is like most of the laws that come out of Congress, it can only be understood and remembered for brief periods of peak mental acuity, if at all. -g-
Regards, Don
micheloud.com
"...Conversely, overvalued coins, that is coins whose value as a legal tender was greater than the value of their metal content if melted, were the only to circulate. Bad money drives out good money..." |
