Gresham's law, in a sovereign country, becomes a tool to manage money. So-called "Good money" becomes a commodity, measured by the governments accounts, paper and issue. Bad money is really money that is outside the control of society. In this post I explain why "good money" tends to be actually bad money, from the Point of View of Society as a Whole.
It is a faulty assumption that rare commodities like gold or silver are better money than, say the bronze tokens the Romans use. Good money is actually money that:
- holds its value (is safe),
- is readily used and accepted in markets
- and that stays in Circulation long enough to support payrolls and investment in capital goods & services.
Therefore it is an illusion that gold and silver is "good money" unless your point of view is one of wealthy people who need portable assets that they can hoard. It is a faulty assumption.
Moreover, actual good money is based on the "full faith and credit" of the goods and services it buys and sells. That implies several additional things:
- Money must be regulated through taxation.
- Money holds its value when unearned and excessive quantities of it are removed from circulation by taxation.
- When there is an alternative to private credit instruments.
- When it is backed by goods and services.