What Does Bad Money Drives Out Good Money Mean?

Bad Money Drives Out Good Money Meaning

Definition: If both low quality and high quality currencies exist in an area or market together, people will keep the high quality currency for themselves and only use the low quality currency with each other.

A good way to think about this proverb is to think about counterfeit and legal currency. If there is counterfeit or inflated currency in circulation, people will hoard their genuine currency and only use the counterfeits in order to preserve the thing of true value.

Anther way this idiom can be used is in the case of two legal forms of currency that are recognized to have the same value by a government. If one of these two forms is considered to be higher value by the general public, the “higher” value currency will be hoarded, and only the “lower” value currency will be circulated.

For example, if a gold coin and a paper bill are both valued at $100, the public will save the gold to keep for themselves, and use the paper money to buy commodities. This phenomenon is also known as Gresham’s law.

The expression bad money drives out good money can also be used metaphorically for any object, product, or skill. For example, now that many products are produced cheaply, higher quality versions of those same products are hard to find.

Origin of Bad Money Drives Out Good Money

gresham law of moneyThis general economic principle is known as Gresham’s law, an idea named after Sir Thomas Gresham, who lived in the 1500’s. He developed and popularized the concept—enough to have it coined after him—but the idea was not specifically unique to him.

It had predecessors, including Copernicus in the 1500’s, Nicole Oresme in the 1300s, and Al-Maqrizi, also in the 1300s. There are even earlier references to this concept that are found in the Bible, and even earlier, in a play by the Greek playwright Aristophanes in the 5th century B.C.

Examples of Bad Money Drives Out Good Money

English idioms bad money good moneyMost people use this expression when speaking of two similar products, in which one has a higher perceived quality than the other.

The example below demonstrates the idiom being used by two high school students discussing the best place to get lunch.

Lisa: Let’s just grab some hamburgers at the nearest fast food place.

Jackie: You can’t be serious. You eat that junk?

Lisa: Sure. Why not?

Jackie: It’s terrible tasting, and terrible for your health!

Lisa: Oh yeah? Then how come there are so many fast food restaurants, and so few at fancy restaurants?

Jackie: Bad money drives out good.

More Examples

  • In most cases, certainly including the cases for TPP and against Brexit, the overall economic merits are clear. But in this advocacy there is a kind of Gresham’s Law (the economic principle that bad money drives out good), whereby bolder claims drive out more prudent ones, causing estimates to often be exaggerated and delivered with far more confidence than is warranted. –New York Post
  • This flight of capital reflects a centuries-old economic principle known as Gresham’s Law, sometimes expressed casually as “bad money drives out good money.” In this context, if two assets — euros inside and outside Ireland — are not equal in value in the eyes of the marketplace, sooner or later the legally fixed price parity will fall apart. –New York Times

Summary

Bad money drives out good is used to explain why it is common to find many cheap or poor quality items and few high quality items in circulation, when both exist in the same economic market.