The 5 Laws of Decline – (#3) Gresham’s Law

Posted: September 2, 2013 in Economics, Freedom, Leadership
Tags: , , , , , , , , ,

GreshamWe have been discussing the 5 laws of decline detailed by Orrin Woodward at the end of his book ‘Resolved‘, and in his and Oliver DeMille’s book ‘Leadershift‘.

In our look at Bastiat’s Law, we saw how people do the least amount of work possible to get what they want, which includes nothing and theft. Add to that Sturgeon’s Law, and we know at most 10% of the people in charge will stand up to that law and do what is right, even if the easier way is available.

That leaves at least 90% of politicians and leaders to fully embrace Bastiat’s Law.

It would not be surprising if you were convinced that the numbers are even worse than that. With the 3rd law of decline, I would be on youre side in that argument since it brings out the worst in a company; and in a country’s leaders as well. It is also always in action when you have Bastiat’s Law showing it’s teeth; in fact it feeds Bastiat’s Law, making Surgeon’s Law even a smaller percentage.

Gresham’s Law

Orrin Woodward takes his 3rd law of decline from Thomas Gresham‘s view on what happens to money. In the book ‘LeaderShift’, he describes it like this:

Thomas Gresham, an English financier, first elaborated Gresham’s Law as it pertains to money. He taught that when a government uses force to support one kind of currency over another, the bad money drives out the good.

But Gresham’s Law applies to more than just money. In short, when a bad behavior is rewarded, more of the bad behavior will be done, and that in turn will drive out the good behaviors.

In the leadership field, this is displayed when bad behavior is rewarded. For example, if someone can sit at their desk all day watching movies and get paid, this will cause others to choose this simpler method of making money (plunder).

Rewarding bad behaviors either converts others to plunder or drives them out of the company as they seek a firm that rewards people based upon productivity, not plunder.

Gresham’s Law: When bad behavior is rewarded, more of the bad behavior will be done, and in turn will drive out the good behavior.

This law compounds upon Bastiat’s Law because it has more people falling into it’s trap. It makes a situation more apparent, and makes more feel it is OK to do something wrong. For example, many people might not think they will qualify for welfare, and so will keep on working without even looking into it; as they should. But the more people that get on the welfare wagon, the greater it’s pull. It will get more people feeling it’s OK to be on it; that they deserve it too.

Consider that there are two ways to get what you want; you can get it through political means, or through economic means.

The ‘economic means’ refers to producing something of value that someone else wants, and trading it for what you want. In this way both people are better off. An example of this would be a salary being given to an employee for his job; the employee trades his time for money, and the employer trades his money for the employees time and what it can produce. If either the employee thought he was better off without the job and corresponding salary, he wouldn’t work unless forced to through some form of slavery.

The ‘political means’ refers to some form of coercion, often through the government and its threat of force. An example of this would be lobbyists and big businesses donating money to get politicians to pass laws (or repeal them) in their favor. Farmers might lobby the government to create tariffs on imports, allowing them to charge more for people to eat, without worrying about a more efficient competition.

The political means is Bastiat’s Law in action. Gresham’s Law states that when Bastiat’s Law is rewarded, there will be more of it.

Gresham’s Law comes in as people see what is going on. You will start having some people who were producers , who were growing the economy, see some of their efforts going to waste. They will wonder “Why am I breaking my back making a living when these guys over here seem to be doing good, if not better, by doing nothing; some of them are actually taking from what I’ve produced!” The more people this producer sees getting rewarded for not producing, the more likely he will join them.

With the ability to get something without earning it, and seeing people rewarded for doing just that, it drives more people to do it. It drives out the good behavior of production, of economic means, and brings in more bad behavior; more political means.

The same principle works with our politicians, and what they will do for our country.

If you have too many bad or crooked politicians, it attracts more politicians with these qualities; especially if they keep their positions through unethical or immoral means. Good politicians will start doing bad things to stay in the game. They might do it by reasoning it’s the only way to fight back against the bad, or maybe by reasoning to themselves that it’s not such a bad thing after all when everyone is doing it.

Apathy sets in for the good ones in office, and in the good ones who would have run for office if there was any belief they could do some good. Unfortunately, when you see politicians passing bad regulations in exchange for campaign contributions, you might decide politics isn’t for you; you might decide it’s not worth it if you have to be in the pocket of some unsavory big business or big union bosses just to get into office. You may feel you can’t compete if everyone else is rewarded for doing just that.

To combat Gresham’s Law, you need to disallow or punish the bad behavior; at the very least you have to stop rewarding it. You will need a decent portion of the population paying attention to what is happening in politics and the economy so that they make the right decisions at the voting booth.

You also need to understand the first two laws of decline and have appropriate checks in place.

With Gresham’s Law running rampant, it makes the 4th law of decline even more detrimental than it would be on its own; the Law of Diminishing Returns.

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