No, Gresham’s Law is not the next legal thriller from the best-selling author John Grisham.
Gresham’s Law is a principle in Economics1 that states that “bad money drives out the good.”
If you’re old like me you can probably remember the lovely bell-like ringing of a silver quarter or half dollar when you’d drop one on the kitchen counter or when you’d flip a coin. That was because before 1965 all dimes, quarters and half dollars were made of 90% silver.
In 1965 the US Mint started making the “clad” coins we use today. Why did the US do this? Well, simply because the price of silver exceeded the value of the coin. In 1964 the government was minting a dollar in silver coins using about $1.25 in silver. That’s a losing proposition. And, savvy citizens were hoarding the silver coins because they could make $0.25 on every dollar they “invested” by selling the coins for scrap silver. That’s nice work if you can get it!
We had a similar situation with copper pennies in the early 1980s. The price of copper rose to an extent that the Mint could no longer make a penny for less than one cent. In 1982 the Mint started making pennies out of copper-plated zinc.
To illustrate the effect of inflation and the value of metals on our coinage, in the 2012 Presidential debates Representative Ron Paul said “I can get you a gallon of gasoline for a dime. You can buy a gallon of gasoline today for a silver dime. A silver dime is worth $3.50, it’s all about inflation and too many regulations.”
So, Gresham’s Law provides one way of judging dollar inflation over time by the value of goods and services as compared to hard assets like gold and silver.
Wonderful, you think, but what does that mean to me today?
Glad you asked.
You can take advantage of Gresham’s Law today by taking the “good” money out of circulation. Granted, I’m not talking about big dollar amounts here, but big percentage amounts. Today, because of current metal prices:
A dollar of copper pennies minted before 1982 is worth $2.88
A dollar of nickels is worth $1.25
Ok, so you’re not going to retire on these amounts, but it’s not too difficult to check your change and toss some pennies and nickels in a coffee can to save for the future. And, if silver dimes are any guide, in 1965 a dollar of silver dimes was worth $1.30. Today it’s worth about $17.00.
Oh, and by-the-way, if you don’t want to save your copper pennies, send ‘em my way. I’ll give you $1.00 for every hundred you send.
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It’s Getting Deep…
Don’t know if you’ve heard of it but a recent concern of security officials is deep fake technology. With deep fake software a video of someone, say a world leader, can be doctored to make that person appear to say anything. For example, the Queen of England could be faked to say that she rides a Harley or that Brad Pitt eats a half gallon of ice cream for breakfast every day.
Well, here’s a fun example of deep fake tech.
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This just in!
As we were going to publish (they used to say “going to print” in the olden days) this story came across the wire (something else they used to say). It was just too good to pass up:
Viagra Shows Surprising Promise in Reducing Alzheimer’s Risk.
Now you’ll be able to remember why you took the Viagra to begin with!
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Economics is often referred to as The Dismal Science because it often deals with perverse human actions.
I was worth a lot more in the olden daze also