– November 30, 2019
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With the Christmas season again upon us, recall the old adage that holds that it is better to give than to receive. The problem, though, is that humans are such inveterate traders that we often feel compelled to reciprocate. But that often just turns into half-assed trading instead of true giving — the unilateral transfer of resources.

You know the story. Second cousin Jimbo or a neighbor two streets over presents a fruit cake or poinsettia or some such item for some reason. (Maybe you helped them, or maybe they want to expand membership in their Potlatch Gang, of which more below.) Suddenly, you and/or your significant other feel obliged to send something of similar value their way. (Perhaps you can regift a la Seinfeld.)

Don’t be ashamed by that impulse. As Adam Smith argued centuries ago, human beings are innate exchangers, the only species that regularly trades with unrelated conspecifics. Or as Smith put it: “The propensity to truck, barter, and exchange one thing for another … is common to all men, and to be found in no other race of animals.” We are not quite Homo oeconomicus, but we are certainly Homo negotiatione.

In fact, many an anthropologist has confused unilateral transfers — i.e., true gifts — with various inefficient forms of exchange. Some even speak of obvious oxymorons like gift-exchange economies, including the infamous potlatch system of the Northwest Coast Indian tribes, that upon closer inspection turn out to be credit and capital markets skewed in favor of politically powerful chiefs.

In potlatch systems, X receives Z from Y today but must “give” Z+ to Y in the future, or lose face or reputation. If X and Y are Indians and Z is smoked salmon, the anthropologists present it as a pre-market utopia characterized by “mutual reciprocity” or some such jargon. If X and Y are corporations and Z is cash or financial securities, the same transaction suddenly becomes evil capitalism.

In any event, as Art Carden recently reminded us, don’t feel compelled to reciprocate out of some vague notion that you will thereby “help the economy.” Christmas consumption does not a vibrant economy make. What matters to our prosperity is productivity, the efficient creation of goods — stuff or services with positive value, as opposed to bads. So, if you want, invest your money in stocks, or cryptocurrency, or simply stuff it under your mattress rather than join the Potlatch Gang. “The economy” will adjust to your desires (to the extent the government allows it to).

In fact, economists have long since shown that Christmas actually hurts the economy by creating what they call deadweight losses — costs imposed by Christmas potlatching that are not somebody else’s gain. If X gives Y some Z that Y doesn’t really want, Z is a bad that goes to waste, or Y’s time is wasted returning Z. The deadweight loss is of course further compounded if Y gives X something that X considers a bad.

Gift cards reduce deadweight losses by expanding Y’s consumption possibilities from a specific Z to the range of goods the card can command, Z1 to ZN, but the gift card rarely purchases exactly what its holder wants, burdening Y with a less desirable model or brand and/or an unused balance or shortfall she/he must pay out of pocket.

Real money is the obvious solution, but I’m told it is considered tacky to give people cash for Christmas. I suspect that is due in part to the fact that cash exposes the silliness of contrived exchanges. We are born and conditioned to reciprocate with goods of approximately equal value, as in standard market trading. So if X transfers to Y a piece of greenish paper bearing Benjamin Franklin’s likeness, Y wants to transfer to X five $20 bills in return, thus reducing the potlatch to merely making change.

Moreover, what seems to keep Christmas and other reciprocal gift-exchange systems going is a form of arbitrage whereby X gives Y something that appears to be worth $100 in the hope that Y will reciprocate with something actually worth a Benjamin. 

My dear wife is a master at this, obtaining goods on auction sites for pennies on the dollar, then gifting them to friends and family who expressed an interest in those specific goods. She manages to signal via social media what she would like in return, not quite as efficiently as a wedding gift registry but effective enough for her purposes, matched to the full retail value of the gifted goods she obtained much more cheaply. Best of all, the profit from receiving a $100 gift in exchange for one that cost only $20 isn’t taxable! (Not yet, anyway.)

Complicating matters is the time component, which leads to strategies like tit for tat. Over the years, I have overheard several parents explaining to a child in some big box store that they cannot give little Johnnie that cool toy everybody wants because last year little Johnnie only coughed up some trinket and he has to pay for his (parents’) scrooginess.

I could delve into more of the intricacies of the gift-exchange systems in modern America but shan’t because I don’t want to leave the impression that giving is bad. In fact, true unilateral transfers appear noble because they are as close to altruistic behavior as we can expect. My beef is not with true giving; it is with inefficient trading disguised as giving. 

I therefore recommend turning to a true gift system: If you receive a gift, do not think “How much is this worth? And what can I get for the giver worth about the same? And why oh why did this person burden me in this busy season?” 

Instead, thank the giver via phone, text, email, or card as appropriate and inform him or her that you will not diminish the joy they get from giving by reciprocating. Refrain from making snarky remarks like “I will put this fruitcake into my bug-out bag and when The End comes and it is the last piece of semi-edible ‘food’ left on the planet, will think of you kindly,” and the giver might even appreciate your action. Or they will hate you and never give you anything ever again. Either way, problem solved.

If giving brings you joy, then by all means give, especially to those you know have specific needs, and make clear in a card that you do not expect, or want, anything in return, that the unilateral nature of the transfer is your only reward. We do this with our own children, of course, by tricking them into believing that some magical fat dude gave them all that great stuff under the tree. Santa Claus is an efficient fib because after kids learn the truth, they often just add to the deadweight loss of Christmas by taking money from one parent to buy often-unwanted gifts for the other!

Perhaps the easiest way to make unilateral transfers is to give cash to charities, which are always out in force this time of year and forbidden by the IRS from reciprocating. If you believe in freedom and liberty, consider giving to Historians Against Slavery, the modern antislavery NGO of which I am treasurer, or the AIER, the governance system of which, unlike that of most universities, guarantees that your gift will never support the forces of statism or anti-market, anti-liberty research.

Merry Christmas, and so forth!

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Robert E. Wright

robert-e-wright
Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University in Sioux Falls, South Dakota. He is the author of 18 books, including a new book on financial exclusion published by AIER.
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