The holidays are here, and in the last weeks, all over the world – the parts of it that celebrate Christmas, anyway – you could see people hurrying through the material streets of their towns or the virtual streets of the internet, desperate to find suitable gifts for their friends and loved ones. The simplest option would, of course, simply be to present them with cash, and that’s precisely why some people consider this practice to be thoughtless. And yet, not only do statistics frequently show money to be the most common seasonal present, some people also defend this as a superior practice to other ways of present giving, as seen in this CollegeHumor video:
This is a parody, for sure, but here you can read about two actual professors of economics raising the same point in full seriousness. One of them, Steven Landsburg, says he is “not sure” why people don’t switch to cash gifts. He is aware of the common explanation that people appreciate the time spent in order to pick and buy a gift for them, “but we could accomplish the same thing by giving the cash value of our shopping time, showing that we took the time to earn the money.” The other one, Joel Waldfogel, wrote a paper in 1993 estimating the “deadweight loss”, a measure for loss of economic welfare that society suffers due to the fact that people choose to spend their money on a gift for someone while that person herself might have preferred to buy something else for the same amount.
Now, I don’t think cash gifts are necessarily a bad thing. I have received some myself and was very happy to spend them on hookers and fine wine. Still, I’m not sure if the question why many people prefer to give or receive old-fashioned non-cash presents is equally mystifying to anyone who hasn’t got an economics degree. But just in case, let’s go back to a brillant fictional physicist’s take on the related matter of birthday gifts:
The entire institution of gift-giving makes no sense. Let’s say that I go out and I spend 50 dollars on you. It’s a laborious activity, because I have to imagine what you need, whereas you know what you need. I could simplify things, just give you the 50 dollars directly, you could give me 50 dollars on my birthday, and so on, until one of us dies, leaving the other one old and 50 dollars richer.
In other words, if we accept the premises behind the “superiority of cash presents” party line, the next logical step is to abolish the practice of gift giving altogether. OK, maybe you could then still give presents in some cases, but only if the relationship is one-sided, i.e. only one party receives gifts from the other. That may not even happen that infrequently (e.g., but not only, in childhood), but the standard relationship one imagines between gift giver and receiver is clearly one of reciprocity, i.e. when one gets the other something for Christmas, or birthday, that person will return the favour. And if both would choose to give each other cash only, the practice seems senseless, whether both of them give the exact same amount or one significantly more than the other and the relationship skews in the latter’s favour.
So, for the practice of gift-giving to make any sense at all, there must be an exchange of things that are different from each other, with each party valuing the gift received higher than the gift it gives. That’s certainly something the economists cited above understand, and probably better than most other people. But, they would contend, that is a suboptimal arrangement, as each person would know better what she herself likes than the other, so why such a roundabout way to get something that may not be the thing she would have desired most to buy?
One possible answer can be found in this introductory economics textbook, discussing a man’s decision to give his girlfriend cash for her birthday, and her subsequent decision to break up with him:
If your employer substituted merchandise of his choosing for your paycheck, you would likely object to this means of payment. But your reaction is very different when someone who (you hope) loves you does the same thing. One interpretation of gift giving is that it reflects asymmetric information and signaling. The man in our story has private information that the girlfriend would like to know: Does he really love her? […] Certainly, the act of picking out a gift, rather than giving cash, has the right characteristics to be a signal. It is costly (it takes time), and its cost depends on private information (how much he loves her).If he really loves her, choosing a good gift is easy because he is thinking about her all the time.
(from: Gregory Mankiw, Principles of Economics, Fifth Edition)
So by giving someone a present, you can demonstrate how well you know this person, and that in turn is a sign of how important he or she is to you (the technical term here is signaling). But this account still has some problems: Being able to pick a gift someone likes may signal how much you think about this person, but it could also be merely an indication of how good you are at assessing other people, or how much of your spare time you spend stalking their Facebook pages, or even of the fact that you are hostile to them and study your enemies very carefully. Moreover, people who like each other but aren’t infatuated with each other in a way that they “think about each other all the time” – such as friends – still participate in the custom of gift-giving. And let’s imagine you presented people two stories, one about someone who immediately knows a perfect present for his girlfriend and orders it online, while the other goes to great lengths shopping for a good gift, and finally chooses one even though it may not be the perfect wish-fulfillment. I am pretty sure many would agree, at least in theory, that the latter man has given a stronger indication of his affection.
That’s still a form of signaling, of course, but it’s not based on how well you know other people, but on how much pains you took to buy something they might like. And some might say that this brings us not only to the alternate, better explanation and justification for gift-giving, but to the true meaning of Christmas and Christmas presents itself: Effort. We saw the reply of one “cash gifts only” economist above: Earning money takes effort, too, and a certain number of work hours has the same value as the time and labour someone would spend to get a Christmas present. But that seems to miss the personalized nature of the latter effort compared to the former: By definition, if someone does work to earn money, they engage in their normal field of business and are rewarded by a means of payment that can be used to obtain any good that is being sold somewhere. In and of itself, that has nothing to do with the receiver of a present (unless they are doing something like working longer hours for the particular purpose of obtaining the money for a cash gift, but that would clearly be different from the generic case we are thinking about). Meanwhile, the effort to choose and buy a gift is specifically tailored and dedicated to the human being the gift is for. Of course, all other things equal, people do appreciate a present that is very close to what they actually wish for the most, too.
What both of these theories highlight is that gifts can be more than a complicated, suboptimal way to barter material goods: Immaterial values like how well you know a person and what efforts you are willing to put into a gift are traded, too. Not considering that point is certainly a major weakness of the cash-giftist argument, and there is another: My preferences for some material goods over others did not develop in a vacuum. They evolved at least partially because other people, including people in my personal sphere, steered me towards a particular book, a particular field of interest, a particular entertainment product, and so on. A gift can give someone an impulse toward discovering they like something (e.g. in my childhood, that happened to me with the “Harry Potter” book series).
And that is what is wrong on a fundamental level here: It’s a feature, not a bug, that gifts don’t always perfectly reflect the desires of the person they are given to. If they did, the whole exercise would be just as pointless as two people simultaneously giving each other the same amount of money. Nor, of course, is it wise to go to the other extreme and not consider the wishes of someone you are buying a gift for at all. That would be egotistical. To me, it seems the whole point of the custom is that the thought process behind looking for and buying a present mixes this (important!) kind of consideration with your own personality, individual attributes and personal choices, so that the gift “encodes” your personal way of doing something nice for another person, possibly giving that person new and exciting impulses in life. More precisely, I mean the positive aspects of you and your personailty, whether they are your capacity for attentiveness, effort, good taste, creativity or diligence. That the choice of present is influenced by your more negative features, such as laziness and ignorance of someone’s preferences, may sometimes or even mostly happen, too, but that would not be part of a positive reason to engage in the practice of gift-giving.
Of course, this kind of philosophy may sometimes still lead someone to give cash presents, for example if that person is really rich, but it would probably not usually be the preferred option. No, the best kind of gift to give someone is a book: While I may recently have given religion some crap on this blog, I can still appreciate the beauty of the saying that “if man as a reasonable being is created in the image of God, a book is the image of the image of God, expressing reason itself” (an admittedly very distorted version of something originally written by John Milton). Because books express and reflect people’s thoughts and individuality, they are ideal gifts if you try to mix your knowledge of someone’s personality and preferences with your own, and they familiarize people with new thoughts and ideas, so “new impulses”: Check.
Well, unless the beneficiary of your present does not want to get a book at all, naturally, or you are very strongly against that type of gift for some reason (and no, I am not out to morally or intellectually condemn that other people’s taste in presents here – just to praise my own). But something can be said in favour of the view that presenting people with books is the highest, purest form of gift giving.
Whether you agree with me about this or not: Merry Christmas!/Happy Saturnalia! 😉