Who stated, “Bad money drives good money out of circulation, when both of them are full legal tender”?
- Irving Fisher
- Milton Friedman
- M. Keynes
- Thomas Gresham
Correct answer: Thomas Gresham
Answer Explanation
An English financier and merchant named Thomas Gresham is credited with stating, “Bad money drives out good money when both are fully legal tender.” According to Gresham’s Law, when both types of money are accepted as legal tender, inferior or debased forms of money tend to circulate more widely than higher-quality ones.
Why the other options are not correct
a. Irving Fisher:
Irving Fisher was an American economist who contributed significantly to the fields of economics and statistics. Gresham’s Law, however, has not been credited to him. Fisher is renowned for his work on monetary economics, interest rates, and debt-deflation theory.
b. Milton Friedman:
Milton Friedman was an economist and a prominent monetarist advocate. Although he contributed greatly to economic thought, he did not formulate Gresham’s Law. Friedman is often credited with arguing that inflation is always and everywhere a monetary phenomenon.
c. J.M. Keynes:
He was a British economist who made a profound contribution to the development of modern macroeconomics. However, Gresham’s Law was not a part of his work. Government intervention to mitigate recessions and promote full employment is Keynes’ biggest claim to fame.
Conclusion
The correct answer is (d) Thomas Gresham. As a fundamental concept in monetary economics, Gresham’s Law suggests that if both good and bad forms of money are accepted as legal tender, the bad money tends to drive out the good money. Throughout history, this principle has been observed and has important implications for understanding the dynamics of money.
Gresham’s principle helps us understand the complex interactions between different forms of money in circulation when it is properly attributed to him.