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It may be fair to suggest that Thier’s Law and Gresham’s Law are not necessarily opposing ideas. Rather they are both rule-based phenomena. Essentially, the nature of legal tender laws dictates which variety of money (higher-valued money or lower-valued money) is hoarded. How can we be so sure? Let’s take Thier’s Law for example. Let’s take the below definition of the monetary concept from an outstandingly well-written undergraduate thesis on cryptocurrency.

“Thiers’ Law, named after French historian Adolphe Thiers, asserts that in the absence of legal tender laws forcing them to accept both currencies, sellers will choose to transact with the currency of higher perceived long-term value. (P.9)”

In the context of this very description of the concept, the mention of the “absence” of legal tender laws comes into play. Meaning that given there are no rules coercively forcing us to accept the two currencies of varying degrees of intrinsic value at the same nominal value. Giving the observant reader the impression that the occurrence of Thier’s Law is the byproduct of the rules governing monetary exchange. In contrast, Gresham’s Law has always implied the existence of legal tender laws. The overvalued money with the distorted nominal value would never be assigned such a value by the market. Such a proclamation could only come in the form of government fiat. Gold and silver (bi-metallism) are of equal nominal value because the king says so. Regardless of the edicts of royal decree individual market participants are going to respond accordingly to the irrational rules set forth by the king. That would be to use the less valuable silver in day-to-day transactions and save the gold.

4 thoughts on “Legal Tender Laws and The Circulation of Money

    1. The more I read from Free Banking proponents and Austrian Economists, the answer should be we can all create our own money. Whether tangible or digital.Providing competition in the currency market. We often forget money is commodity like any other.

      There is the story of Bernard von NotHaus, creator of the liberty dollar. He got into huge trouble in the 2010s, for his minting activities. He infamously created a silver dollar of high purity with Ron Paul’s likeness on it. He was featured in the F.A. Hayek episode of The Masters of Money.

      Liked by 1 person

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