An Essay on Economic Theory

3.4. The Variations in the Proportion of Values with Regard to the Metals Used as Money

An Essay on Economic Theory by Richard Cantillon
Richard Cantillon

The price of gold and silver and the ratio between them is determined by markets and is also based on their usefulness, cost of production, and transportation costs. When government mints establish a fixed ratio between gold and silver money that is not based on market prices, the overvalued metal will be driven from circulation. This is commonly referred to as “Gresham’s Law” where bad money drives out good money.

From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.