Good money is money that shows little difference between its nominal value (i.e., the face value of the coin) and its commodity value (i.e., the actual rate at which the coins are exchanged for bullion versions of the commodity). In the original discussions of Gresham's law, money was conceived of entirely as metallic coins, so the commodity value was the market value of the coined bullion of which the coins were made.
Bad money is money that has a substantial difference between its commodity value and its market value, where market value is lower than exchange value, or the actual value is lower than the market value.
In Gresham's day, it was not uncommon for metal coins-- usually gold or silver-- to be "debased". This could occur by removing a small portion of the metal, or by substituting less valuable metals during the minting of the coin. As an example, a coin containing .1 ounce of gold might be valued at $10 because of the commodity value of gold. However, if someone removed a small amount of the gold, or substituted copper for a small portion of the gold, the actual commodity value of the coin was reduced. In either case, a coin that had a perceived content of .1 ounce of gold actually had a lesser quantity of gold.
Removing some of the gold, or "shaving" as it was called, had limitations. If much of the gold were removed the coin would be obviously marred, and its value called into question.
But substituting other metals could be hidden. The appearance of the coin might appear the same to an untrained observer, and thus its actual metal content was not questioned. When this fraud was perpetrated by the government, and backed with legal tender laws that required the citizens to accept the debased coins, the government could "create" money. That is, it could use an ounce of gold to produce $10 coins that contained only .09 ounce of gold, and thus mint 11 coins with with a value of $10. They could "magically" turn $100 into $110.
When citizens held two coins-- one with .1 ounce of gold and one with .09 ounce of gold-- of equal legal value, the citizen would spend the coin with the lesser gold content. The coins with greater gold content quickly left circulation, that is, bad money drove out good money.
(It is interesting to note that in 1982 the United States mint began making pennies out of zinc rather than copper. The value of the copper in the penny exceeded one cent and the pre-1982 pennies quickly left circulation.)
While Gresham's Law is typically applied to economics, the same principle applies to other spheres of human conduct. For example, "bad" rights drive out "good" rights.
A right is a moral sanction to act without intervention in a social setting. A right permits an individual to pursue his values without interference from others, so long as he respects their mutual rights. A right permits an individual to act according to his judgment, in the pursuit of his values. He cannot force others to provide for his wants and desires, just as others cannot force him to provide for theirs. Rights only apply to individuals.
But witness the plethora of "rights" we hear about today-- rights for women, gays, blacks, Hispanics, etc. Such proclamations imply that women have rights distinct from men, that gays have rights distinct from heterosexuals, that blacks and Hispanics have rights distinct from whites, etc. This is simply absurd.
Consider how these "rights" are exercised. "Women's rights" are exercised by compelling men to act in a certain manner. The same is true of other alleged rights. In each instance, the alleged rights do not permit an individual to act according to his judgment, but in defiance of his own judgment. In each instance, the alleged rights force some individuals to act in accordance with the desires and wants of other individuals.
The result is that "bad" rights-- that is, those rights that apply to some individuals-- supersede "good" rights-- those that apply to all individuals. Legitimate rights are withdrawn from society, just as good money is withdrawn from circulation.
If the world returned to a gold standard our current economic crisis would be rectified. If the world discovered a "gold" standard for rights our current moral and political crisis would be also rectified. It is time for the good to drive out the bad, both in economics and in morality.