For a simple example, the common currency on the market is silver coin, and a silver coin can buy a pig. However, when casting silver coins, some unscrupulous craftsmen cut corners without conscience and mixed aluminum or iron into them, and then this part of silver coins flowed into the market. The defective silver coins and the real silver coins together became the money for buying pigs. These two kinds of silver coins have different actual values, but they can both buy a pig.
Over time, some people found that this practice actually has a huge interest space, so more and more defective silver coins flowed into the market and became the main force in the money market, while the original pure silver coins gradually withdrew from the original money market and were collected or recast by people. This is bad money driving out good money.
Extended data
The concept and logic implied in the phenomenon of "bad money drives out good money";
1, selfish. Historian Sima Qian said, "The world is bustling, all for profit; The world is bustling, all for profit. " Under the condition of market economy, the pursuit of interests is the prerequisite for the survival and development of individuals and organizations. There is no behavior and tendency to pursue their own interests, and there is basically no market transaction and wealth increase. It can also be said that no self-interest means the sustainable circulation of "good money", and there is no distinction between "bad money" and "good money". ?
2. Information asymmetry. People are bounded and rational, and it is impossible to have a panoramic understanding of the complex and uncertain environment, and it is impossible to obtain all the information about the present and future changes. In this case, some people may use some favorable information conditions to lie and cheat each other, so "bad money" can be circulated in the market as "good money". If both sides of the transaction are well aware of the quality or authenticity of the currency, it will be difficult for holders of bad money to use their bad money; In other words, even if it can be used, it can only be traded with the other party according to the "actual" rather than "legal" value of bad money. ?
3. Opportunistic behavior. In market transactions, people always instinctively try their best to protect and increase their interests in economic activities. Once there is an opportunity to realize profits and interests, there will be motivation and behavior to chase. Especially in the case of asymmetric information, if people don't disclose all the information completely and truly, selfish opportunistic behavior will inevitably occur-"bad money goes to circulation and good money goes to collection".
Baidu Encyclopedia: Bad money drives out good money