Not only do dishonest persons sometimes clip coins, but even governments have often resorted to the dishonest practice of debasing the coinage by putting into the coins a smaller amount of the precious metals than they had theretofore, and of keeping them in circulation at the old rate. If the coins all look and weigh about alike, most people will accept and pay them out indifferently. But when it is desired to melt coins in order to use the metal in the arts or to ship it abroad where it will be weighed and tested, the persons who select the coins for these purposes will usually see to it that only the best ones are melted or shipped abroad. This results in leaving the poorer coins in circulation at home. This principle, that the cheaper money tends to drive out the dearer, was clearly recognized among the ancient Greeks.

In the fourteenth century Nicholas Oresme, later Bishop of Lisieux, explained to his King that whenever the coinage was tampered with so as to leave in the country two moneys with different values, the money with the lower value always drove the money of higher value out of circulation. In 1558 Sir Thomas Gresham, a merchant of London, in a letter to Queen Elizabeth explained that her father's debasement of the coinage had driven the better gold from the country. From this fact the principle is usually referred to as Gresham's law but it is sometimes called Oresme's law because of its earlier and better statement by Nicholas Oresme.

Oresme's or Gresham's law applies not only where the coinage has been debased and where there is a dearer and a cheaper coin of the same metal, but it also applies where different kinds of money are in circulation at the same time in the same country. If any one kind is overrated in value as money, it will be the coin that is more valuable as bullion than as money that will be melted or shipped abroad to pay international debts. Similarly, depreciated paper money will drive more valuable money out of circulation.