This is known as Gresham's law, and is so self evident that it does not require much explaining. However, there is an important related aspect that is somewhat less obvious. When good money is pushed out by inferior fiat currencies, a general corruption of society follows. Good ideas and good people are pushed out as well.
Fiat currencies are easily inflated. They loose value over time, and holders of such currencies are therefore constantly looking for investment ideas. This spawns malinvestments. Resources are redirected from productive to unproductive work. Bad ideas that wouldn't ordinarily get any funding, are suddenly everybody's favorite investment darlings. Truly insane and destructive fads become speculative bubbles.
This in turn drive honest people to the sidelines. Seeing through the madness and realizing that it is all speculative nonsense, honest people withdraw from the fad driven part of the economy. However, with a lot of resources allocated to fads, there is not enough resources allocated to good and honest ideas to provide everyone with meaningful employment.
Good people and good ideas become marginalized through bad money. The more corrupt the money, the more marginalized is the good and honest side of society. Financiers, politicians, lawyers, bureaucrats and other busybodies get a large part of the funding that should have gone to farmers, engineers, factory workers, nurses, and other good people.
Not only does bad money drive out good money, it drives out good and honest people as well, thereby corrupting society as a whole.
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| Sovereign |
By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link
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