Gresham’s Law: The Bad Drives Out the Good As Time Passes

Gresham’s Law was first applied to economics. In ecomomics, Gresham’s law is a monetary principle stating that “bad money drives out good”. For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.

Whenever coins containing precious metals have been used along with base metal coins of the same denomination, both legally accepted as tender, the bad coins have driven the good coins out of circulation. Gresham’s Law is named after Sir Thomas Gresham (1519-1579), an English financier in the time of the Tudors.

One practical application of Gresham’s Law and perhaps the most important is to avoid becoming part of systems where good behavior cannot win due to the nature of the law. There are certain companies and organizations that lack the “policing” necessary to keep systems of behavior on the straight and narrow, and thus bad behavior gains a hard-to-replace foothold. While it’s admirable to be the “cleanest shirt” in a pile of dirty laundry, certain areas of human life do not allow the clean shirts to win. As a leader, when you do observe behavior that is not acceptable, it is your duty to deal with it and not reward it. If you do, over time bad behavior will drive out good beahvior.