by David Kranzler
Investment Research Dynamics
“Bad money drives out good money.” When Gresham put forth this proposition, sovereigns were diluting gold and silver coins with metals of lesser value yet the diluted coins were given the same value for legal tender purposes as the more pure coins. Gresham observed that the more pure coins would be hoarded and the lesser value coins would be used for trade.
Sound familiar? Go find pre-1964 dimes, quarters and half-dollars and try to buy them for their legal tender value. Pre-1964 silver coinage contains 90% silver. Post-1964 silver coins are made from nickel and copper. No one who holds pre-1964 coins would use them for their face value. They have disappeared from circulation. The melt-value of the silver in a 1963 quarter currently is $2.60.