Gresham's Law is an observation made in national economy regarding the quality of coinage: "Bad money drives good money out of circulation". It only operates when coinage has intrinsic value, most commonly because it consists at least partly of silver or gold. This is called commodity money, whereas today's coins and bills are called fiat ("let there be") money and has hardly any intrinsic value at all. For the law to work, money must also be governed by legal tender legislation, as it is today. Such legislation states for instance that merchants must accept pennies with the current king's portrait regardless of the individual pennies' quality.
Back when European states had commodity money, people hung on to coins with a lot of precious metal in them, preferring to use bad coins (recognisable because they were lighter or had the green tint of copper) for transactions. This meant that the bad coins circulated far more than the good ones.
The trade items in geocaching fulfil the prerequisites of Gresham's Law. They are commodity money, and different items have different values. But there is a "legal tender law" in the game, stating that if you take one item out of the box, then you have to replace it with another item. Even if you take a tamagotchi and replace it with a wood screw. So the reason that there are so few really good items in geocaches is not simply that people loot them. They generally follow the rules and put something in the box, but it's rarely as valuable as the item taken.
Frands Herschend has demonstrated that Gresham's Law operated in Viking Period Scandinavia. Coins found in large hoards of the time are heavier on average than coins found in small hoards. This means that Scandinavians were at least sometimes using the coins under a legal tender system, at home or abroad, and that in such situations they preferred to use as poor coins as possible for payments. The richest people had the most opportunities to acquire and accumulate heavy coins. This tendency was accentuated by the fact that in most of Scandinavia, there was no recognised legal tender. Instead, silver bullion was weighed on little balances. And in such a case, the face value of a coin struck in some far-off English city was irrelevant. But both participants in a transaction were keenly aware of its weight.
Herschend, F. 1989. Vikings following Gresham's Law. Larsson, T.B. (ed.). New approaches in Swedish archaeology. B.A.R. 500. Oxford.
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