Grinch sled

Tim Harford burnishes his crotchety economics credentials with a terrific article, "In praise of Scrooge".

His point: many presents are not well chosen. And givers, he says, like to give original or spontaneous gifts, not cash or items on a wish list. But recipients prefer that cash or wish list items. "We waste energy, material resources and labour that could have been far better deployed making something people did want," writes Tim.

In the language of Econ 101, there's a deadweight loss of Christmas.

So why not give cash, says Harford? That's what a ghost-chastened Scrooge did for Bob Cratchit: the old miser gave his employee a pay raise.

But gift-giving is one of the most universal behaviors in every society from the Stone Age to the Information Age. Maybe we need to consult the anthropologists.

The short answer: gifts are a way of communicating our status and maintaining strategic relationships, and cash is good for some of those signal and relations but not all.

I'm hardly the best person to do this, but here are a few things I've gleaned from anthropology:

  • Gifts are used to signal our identity, especially our position in a hierarchy, as peers, patrons, or clients
  • They're also used to signal and strengthen small group networks and alliances, ones that are important for economic cooperation, protection, shared public goods, informal insurance, and so many other things
  • The different dimensions of a gift—price, quality, time, thoughtfulness—have a purpose: they help to create, maintain, increase, decrease, or end these relationships.

[See, for example, this summary article]

This doesn't quite answer Tim's question, "Why not cash?" Couldn't cash do all these things equally well?

Think about the times it's not distasteful to give cash or buy from a wish list. Aunts give checks to nephews. Richer people pay the school or medical bills of a poorer friend or acquaintance. Older well-established couples buy gifts off a newlyweds' registry.

These are all cases where there's a clear hierarchy of wealth and status.

Now think about gift exchange between relative equals. Cash would be pointless. I'd give you $50 and you give me $50. What would be the use of that?

Every other kind of gift, however, tells a thousand words.

Giving gifts also creates inequalities, very much on purpose. These gifts quietly say, "I did something nice for you. Now we'll see if you pay me back and how. I'm watching and waiting."

This sounds cynical. You might say "What about the warm glow of giving?" People genuinely enjoy gift exchange. That's true. Not all giving might be strategic. Social science theories don't explain all of a behavior. Just regularities.

Then again, it's possible the warm glow is an evolved response. People who are better at reciprocity and alliance building are more likely to pass on their genes.

Tim wanted to ruin your Christmas with talk of deadweight loss. But like the Grinch whistling down the mountain back to Whoville, I bring tidings of another spirit of giving: an evolved approach to communicating your status, creating a system of social insurance and club goods, and keeping the boundaries of the club clear through reciprocal, sometimes unequal exchange.

Happy holidays everyone!