Gresham’s Dynamic As Applied To Billionaires


I wrote an email response to a friend who described to me what his ideal billionaire would do for his/her workers and society as a whole.

Something I learned in my first economics course, and I have seen it played
out over the years.

From Encyclopedia Britannica:

Gresham’s law, observation in economics that “bad money drives out
good.” More exactly, if coins containing metal of different value
have the same value as legal tender, the coins composed of the
cheaper metal will be used for payment, while those made of more
expensive metal will be hoarded or exported and thus tend to
disappear from circulation. Sir Thomas Gresham, financial agent
of Queen Elizabeth I, was not the first to recognize this monetary
principle, but his elucidation of it in 1558 prompted the economist
H.D. Macleod to suggest the term Gresham’s law in the 19th century.

Nowadays, when economists apply this to more than coins, they call
it a Gresham’s Dynamic. What I saw in the dot com bubble, was a
Gresham’s Dynamic of mutual fund managers. The one’s who could
keep their wits about them, and not succumb to the mania, were driven
out of the business by the mutual fund managers that were racking up
great performance numbers by going wild for dot com. I didn’t get
hurt at all by the bursting of the bubble, because I was adamant about
not jumping on the band wagon. As I used to say to my colleagues
who were boasting about how much money they were making ”

The goal
is not to have the highest peak theoretical wealth ever, but how much
of that wealth you still have after the bubble bursts.

I wasn’t the one to have a higher tax bill from stock options that I never got
to cash in before they became worthless.

So, in your dreams about ideal capitalists, there is a Gresham’s
dynamic going on. The ones who want to do right by their employees
and society get taken out by corporate raiders. The rules have
been rigged to reward the raiders, and leave the good capitalists
with no protection. The good capitalists either get driven out of
business, or they have to take on some of the predatory practices
just to survive. This is why we must have some entity (the
government for example) to set the rules to prevent the Gresham’s
Dynamic. So, while I love your idealism, I am aware of how things
work when everybody is set free to do whatever they want.

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