The unwanted gift

Before markets existed, people used gifts to save and invest, to exchange goods and services, and to pool risk.

Lark Rise to Candleford, Flora Thompson's portrait of 19th century British village life, describes a gift exchange - and its underlying logic - in detail.

Each year every family in the village bought and raised a piglet. The family pig was fed on scraps, acorns, leaves - anything the family could get their hands on - as well as purchased grain. Once fattened up, the pig was slaughtered. But with no refrigeration, how could the meat be kept? 

Smoking and salting preserves meat - at a cost. 

Since every family had a pig, and pigs reached maturity at different times, there was a simple way of solving the meat preservation problem: gifts. As Flora Thompson describes it:

...when the carcass had been cut up, joints of pork were distributed to those neighbours who had sent similar ones at their own pig-killing. Small plates of fry and other oddments were sent to others as a pure compliment, and no one who happened to be ill or down on his luck at these occasions was ever forgotten.

By sharing, everyone was able to eat fresh meat more often. Gifts to those who were down on their luck had a further economic function: a type of social insurance, protection against fluctuations in income.

Because gift giving has played such a crucial economic role throughout human history, it is enforced by social norms. "Give, and it shall be given unto you." Giving is good. Gifts should be reciprocated.

The unwanted gift is a consequence of these social norms.

One form of unwanted gift is the disguised solicitation. Greeting cards, calendars, note pads, address labels - "Our Gifts to You!" And, inside, a letter requesting a generous gift in return, to meet the urgent needs of the sick, the ill, the vulnerable.  

I don't want them. Right now I have address labels from Imagine Canada, the MS Society, Save the Children, the Nature Conservancy of Canada, the Ottawa Humane Society, CUSO-VSO, the Canadian Hearing Society, Canadian National Institute for the Blind, and something called Development and Peace - enough for years of mailings. Sending me more is just a waste.

Plus whenever I use a sticker, I attach my name to the cause it represents. These so-called "gifts" are a way for charitable organizations to generate publicity, to market themselves.

Can't you just leave me alone? I'm an o.k. person, I do give, but I want to give to the cause that needs the money the most, not the one that spends the most on marketing.

These unwanted gifts eat away at the norm of reciprocity. People become accustomed to receiving without reciprocating - keeping the address labels for future use, tossing the request for funds in the recycling. Exploiting the power of the gift diminishes it.

The other form of unwanted gift is the polar opposite of useless address labels. It's the gift so wonderful, so perfect, so generous that you cannot possibly reciprocate.

The movie Bridesmaids explores this idea - the dilemma of the nouvelle pauvre who can never reciprocate the generosity of her nouveau riche friends. 

It doesn't have to be a gift of money. It could be a gift of time - the friend who fixes your car for you, or looks after your dog for weeks on end while you're out of town. Somehow "here's my spare Canadian Tire money, I know you always use it" doesn't quite cut it. 

Reciprocity is delicate. It does not have to take the form of a direct quid pro quo. The success of Girl Guide cookies, for example, rests in part on diffuse reciprocity - I buy cookies from neighbourhood children as a way of saying thank you to people who bought cookies from me years ago. What goes around, comes around. Much more quickly than you might think.

But unbalanced reciprocity -- the prospect of endless commitment, infinite need - makes people deeply uncomfortable. They get out. That's why people who need the most help from friends and neighbours sometimes get the least - it's just too great a burden. 

The need for reciprocity must be understood by anyone who hopes that private charity can play a major role in providing for the vulnerable or caring for those in need. As the social, economic and physical distance between rich and poor widens, the possibility of any kind of reciprocity - direct, diffuse, whatever - diminishes. Pure altruism, or a warm glow, might still motivate the wealthy to give - but I'm not counting on it.

With all of these unwanted gifts, is gift-giving dead, an ancient ritual entirely superfluous in market economies? Joel Waldfogel famously estimated the dead weight loss of Christmas, asking if we'd be better off without all of this getting and spending.

I don't think so. Gift exchange has many advantages over market exchange. It provides, for example, a way to save which is (relatively) immune from inflation or financial market volatility. After all, which is a riskier proposition: giving a PS3 to your son, in the hopes that in 40 years time he'll drop by and help you out with grocery shopping occasionally, or giving the same amount of money to a financial adviser? 

Any institution that has survived for millennia must have something going for it.

Comments

[Becky Hargrove]

"In hopes that in 40 years time he'll drop by" - this also is telling, in that even within family the ability to spontaneously reciprocate only goes so far, and that is only natural in terms of stubborn wills and self respect. Reciprocity has been a part of my studies for the past seven years, as I still remember the looks on the faces of some friends who reluctantly received gifts from me. At the time my own economic situation was more precarious than I realized, and they knew it already.

This is why I also work on systems to improve the distribution of reciprocity, for we will most certainly need them in the future, as it becomes harder for institutions to fulfill those economic activities. People need not be so uneasy with one another if they at least have a similar economic 'floor' by which they can stand and reach out to one another.

[Frances Woolley]

Becky - thanks for those thoughts. Your comment about the importance of an economic floor is interesting.

It seems to me that there are probably thresholds - floors as you put it - and once someone passes a certain threshold, reciprocity is impossible. Economics is mostly about marginal analysis - I don't think economists are always great at understanding discontinuities, how we get from one equilibria to another one. Until we find ourselves stuck in a bad equilibrium and hope that some fairy will come along and wave a magic wand!

[Becky Hargrove]

I owe an apology to you and someone I teased last week who suggested a 'floor' for the middle class, in that I suggested a floor for lower classes without explaining myself. I don't mean a floor in terms of handouts by someone else (like government) but a floor that we can create by our own skills and incentive through our own economic environments. For the individual with little money, this would be their primary link to the economy that is in fact money based, which would then free them for reciprocity that goes beyond the money based economy.

[Nathan Tankus]

My jaw literally dropped at this post. While I'm always happy when an economist discovers anthropology and history, how do you square this with new keynesian barter economy models?

[W. Peden]

Isn't there a distinction between gift-giving and barter? For one thing, in barter one might haggle.

It would be interesting to square this with some of Hayek's considerations of the familiar vs. the non-familiar fields of exchange (my terms, not his). One of the pleasant things about Christmas and birthdays is thinking about what another would want and vice versa. It's a very profound manifestation of a personal relationship. Giving and receiving gifts is even fun when one doesn't know the other person (say a co-worker), yet there is some established convention that allows you to know what to get ("I believe that a bottle of champagne is the traditional surprise, Minister".).

Of course, these benefits are only present where there is either a convention or there is enough mutual knowledge between the two people. I think that Christmas WOULD be worth abolishing Waldfoegel-style, if the gift giving just took place among some random sets of people in the population every year. You'd dread it. This brings me back to Hayek: a market economy enables us to mutually satisfy our respective needs even though we do not know the overwhelming number of people with whom we transact. For almost all exchanges, the price system is the worthy successor of the gift/barter economy; that doesn't mean we need to get rid of Christmas.

Going back to the random Christmas hypothetical: imagine if you could just give people money. To avoid regressive transactions (e.g. the poor giving money to the rich) we could create a system where the amount of money you gave to each of the other people in the set depended on your respective annual increases in monetary assets during the previous 12 months. You become either a net recipient of money or a net loser of money. Bingo: I've just reinvented the income tax and welfare systems!

[Darius]

"Reciprocity is delicate. It does not have to take the form of a direct quid pro quo. "

True, but more problematically, direct reciprocity and even what you describe as "diffuse" reciprocity don't scale very well. You wind up with a lot of useless address labels because the institutions that are sending them have no way of assessing your particular need for address labels.

They can't possibly store or sort enough information about each possible recipient to choose a different gift for each, and maximize the chance that each one will reciprocate. Instead, they have to gift in a way that maximizes the aggregate chances of reciprocity from a large population of recipients, thereby maximizing the chance that a large number of unwanted, perhaps even counter-productive gifts will be sent. By the same token, you can't possibly single-handedly support a large institution of the sort which can afford to send out a lot of useless address labels, so the institution has to gift lots and lots of Frances Woolleys in order to survive.

The "diffuse" Girl Guide cookie selling strategy is more effective largely because it relies on the pre-existing and somewhat localized cultural affinity between you and your neighborhood Girl Guides. If you weren't already engaged with them by virtue of history you would just buy (cheaper) cookies at the store, and even if Imagine Canada started setting up cookie stands instead of sending address labels they would still have to build up that cultural affinity from scratch.

[Frances Woolley]

Nathan - "My jaw literally dropped at this post. While I'm always happy when an economist discovers anthropology and history, how do you square this with new keynesian barter economy models?"

Why would I have any need to square this with new Keynesian barter economy models?

This post is not "I've just discovered anthropology." This post is "here are some ways in which socio/anthro/economics sheds light on everyday economic experiences."

[Frances Woolley]

Darius: "direct reciprocity and even what you describe as "diffuse" reciprocity don't scale very well"

This is true. And markets do scale. So presumably this implies that, in a globalized economy, markets must replace gifts. But there are some things markets don't do very well. Like make sure that "no one who happened to be ill or down on his luck" is ever forgotten.

W. Peden "For almost all exchanges, the price system is the worthy successor of the gift/barter economy;"

True, for the reasons you give, as well as the ones Darius gives. And does this imply that - as in your thought experiment - that it would be better to replace charitable "gifting" with a basic tax/transfer system?

Becky: "a floor that we can create by our own skills and incentive through our own economic environments"

This reminds me of microcredit and also of work by feminist economists such as Bina Agarwal who argue the importance of land rights - owning land or other assets is necessary to be productive and escape poverty.

[nathan tankus]

I'll just grab the nearest mainstream economics textbook to make my point.this is from
Macroeconomic Theory: A Dynamic General Equilibrium Approach By Michael Wickens.
"Exchanging goods and services for gold and silver (and sometimes
other precious commodities) was an early solution to these problems of barter.
Gold and silver also solved the problem of providing a store of wealth and a
means of creating credit. The main problem with gold and silver is that they are
in limited supply. As economies grow they need an increasing supply of these
precious metals to finance transactions. This tends to drive up the price of gold
and silver, which provides an incentive to economize on their use."

any serious reading in anthropology or history will see that this story (which is replicated in just about every mainstream economics textbook) is completely made up and has no basis in fact or history.Despite that, this story continues to be the shaky foundation mainstream economics is built on.

the alternative socio-political structures (like gift exchange) that have historically been used to produce and distribute goods and services are completely ignored by mainstream macroeconomics. if agents were assumed to behave in the ways documented by anthropologists, the models would completely break down.

[Becky Hargrove]

Frances,
Thanks so much - that is a true compliment for someone who is in many ways self taught, although I stand on the shoulders of countless book authors. I actually argue for knowledge rights, i.e. the right to use what we have learned to help others in lateral ways. The lateral use of knowledge may assist people from having to fall back on property as a first line (origin) of wealth in the developed world, by adding wealth beyond the efficiencies of production.

[Frances Woolley]

Nathan -

I'm puzzled. Is your point: "great post, it's really excellent to have a conversation bout gift exchange on this blog". Or perhaps: "every mainstream macro guy out there should read this post, and think about how important gift exchanges are"

Or is your point:"If I was writing a post about gift exchange, I would have written one criticizing mainstream macro barter models."

Which is fair enough.

But as a not-so-mainstream micro person, I'm just not interested in those barter models. I'm much more interested in the evolution of social norms, the consequences of economic inequality, and the other points I raised on this post.

If you've got comments on those points, I'd love to hear them.

[W. Peden]

Frances Woolley,

I think that the charity vs. the state issue depends on the type of provision in question. The state is a useful device when everyone needs to be treated more or less identically and therefore is not well-suited to most tasks (including most welfare transfers) since people are not identical.

However, Adam Smith noted that benevolence is partial and that our sentiments towards the old, the ugly & the generally unpleasant are lacking, which is one of his reasons for having a system of natural liberty for transactions outside groups where people's benevolence is obligated by norms and supported by natural sentiments (family & friends). Or think of how steel workers and car workers are able to take from the many, including the poor, because of our sympathies for those in industry.

Equally, charity has many great aspects (including its voluntary nature) but here again the partiality of human benevolence becomes a problem. It's very hard to get most people to care about the homeless, the old, those with disgusting diseases (it's not easy to have a poster-child for a charity that treats people with severe facial disorders) and so again, as with natural liberty in the field of economic exchange, we need to "tip the scales" a bit in favour of the unsympathised by creating a basic safety net.

There are also more familiar problems with charity e.g. regional disparities, the instability of benevolence (people feel least charitable during recessions, which is when charity is needed most) and the ideological aspect of many charities (though all welfare also has an ideological aspect to some degree and it will tend to be a football for the ambitions of politicians).

So, overall, while I would like an expansion of charity and a contraction of transfer systems, there are limits to my ambitions in this regard.

[reason]

Frances,
in general I think you are correct, but I think you are missing the point. There must be a reason we moved away from relying on private charity in the first place. Read some Dickens.
The problems are:
1. Power abuse
2. Begging is demeaning and charity goes to the face the see, not the one you don't.

[reason]

Yes,
and what W. Peden said.

[reason]

"After all, which is a riskier proposition: giving a PS3 to your son, in the hopes that in 40 years time he'll drop by and help you out with grocery shopping occasionally, or giving the same amount of money to a financial adviser?"

You've got to be joking. If he's educated, he will probably live in another city (if he isn't dead).

[Frances Woolley]

reason: "Read some Dickens."

I find it odd that you advocate reading Dickens, and then agree with W. Peden's remarks, when Dickens' world view is so fundamentally different from W Peden's.

E.g. W Peden's remarks: "Or think of how steel workers and car workers are able to take from the many, including the poor, because of our sympathies for those in industry."

Don't you think that's the kind of thing Mr Gradgrind would say?

"You've got to be joking. If he's educated, he will probably live in another city (if he isn't dead)." - I agree it's not a good bet, but you haven't seen the return my financial adviser has been getting recently.

[W. Peden]

Actually, I quite like Charles Dickens' world view, insofar as it is essentially contained in three propositions-

1. The world would be better if we were all more decent. Pretty obvious: literature is one of those fields, like academia, where you can actually be considered an insightful thinker simply for pointing out that we do not in fact live in a utopia.

2. The 19th century was full of misery. It was; thankfully, industrial capitalism got rid of all that 19th century-style poverty in the UK.

3. Good food and communal eating is worth paying attention to. Perhaps Dickens' most profound point?

I think that the difference between Dickens and me is not so much in world view, but in the fact that we live in two very different worlds, precisely because capitalism has changed the world from the squalour of early industrial and pre-industrial societies.

[reason]

Ah well,
it seems W.Peden made a number of very good arguments for welfare over charity, but then decided he liked charity. Strange.

[reason]

I think the difference between us occurs with this statement:

"The state is a useful device when everyone needs to be treated more or less identically and therefore is not well-suited to most tasks (including most welfare transfers) since people are not identical."

He then argues - excellently - that cognitive biases make private provision of welfare patchy and unreliable. I would think that there being a minimum standard we want everybody to reach (i.e. not starving) makes the state ideally suited to providing this (as this is identical in everybody).

This is not to say that there isn't a substantial opportunity for charity to suppement this basic insurance function.

[reason]

(And yes not freezing and not dying of preventable disease, go together with not starving).

[Frances Woolley]

W Peden - I was kind of picking on you to make a point. Thank you for taking it in good spirit. On the relative contributions of industrial capitalism and the welfare state we'll probably have to agree to disagree, but I like your observation #3 very much.

[Frances Woolley]

reason - and I think you also have to weigh in the *huge* cost of raising funds through charity. I'm on a lot of charities' mailing lists, and every single day I'm throwing out these letters (or fishing out the address labels and then throwing out the letters). It is *such* a waste. Taking into account also foregone tax revenue associated with the privileges of charitable status, and the (small) percentage of charities that are just pure scams, I'd really like to get an estimate of the marginal cost of raising funds through charity v. the marginal cost raising funds through taxation.

[W. Peden]

Reason,

Welfare has its place; charity has its place. As I said: state-provided welfare is good when you want to treat everyone the same, e.g. with a safety net. Charities can deal with the diversity of human beings better, but as I said they have severe limitations when it comes to the provision of safety nets.

"I would think that there being a minimum standard we want everybody to reach (i.e. not starving) makes the state ideally suited to providing this (as this is identical in everybody)."

This is where we [i]agree[/i]. Charity (or more precisely NGOs, which may have some state funding), as I see it, becomes useful when one wants to move beyond the basic safety net e.g. homeless rehabilitation: not just making sure the homeless don't freeze to death, but also getting them back into society, training them to be able to work again, and getting them off substances.

[geerussell]

David Graeber talks about reciprocity as something that happens between equals. Give me a share of your pig today, get a share of mine tomorrow.

When gifts are given between two parties who aren't equals, gifts tend towards becoming custom rather than reciprocal.

In the example of charity, the recipient can't possibly reciprocate and the expectation, stronger with each iteration of giving, becomes that the gift will be given again. Charity becomes custom.

In the other direction, give a gift to a king and he's likely to expect another one the next time the occasion arises. Tribute becomes custom.

[rpl]

There is something suspect about any theory that deems holiday gift giving to be a form of saving. Holiday gifts are manifestly consumption. If you plan ahead, you can minimize the dead-weight loss, but even if you eliminate it entirely you've still consumed. That is, you've depleted, rather than added to, your stock of wealth, which is exactly the opposite of saving.

The story about the pigs in the village works because the pigs can only be harvested in large, discrete quantities (a whole pig) and are very perishable once harvested. Gift exchange thus allows villagers to level their consumption, which is a good thing for them, but I'm not sure it qualifies as savings, since the consumption can only be deferred in a limited way. By the end of the year all the pork will be consumed. Contrast that with, say, holding back some corn from the annual harvest. The deferred consumption allows you to save the corn against famine in the indefinite future, or to grow more corn next year. You can't do either of these things in the pig story.

[Frances Woolley]

rpl: "There is something suspect about any theory that deems holiday gift giving to be a form of saving. Holiday gifts are manifestly consumption."

Corn can't be stored for more than a year or two. It cannot protect you against famine in the indefinite future.

Gold, unlike corn, keeps indefinitely. But gold can't be eaten. So it's of limited use in times of famine also.

In short, savings are only of use in as much as generate consumption in the future.

Yes, holiday gifts are consumption. But they are *someone else's* consumption. There's a reason that children are the centre of holiday gift giving - they can't produce sufficient resources for their consumption needs.

So I satisfy my kids' consumption needs now, in the hopes that they'll satisfy my consumption needs when they're old.

Now, true, holiday gift giving has become commercialized, and some of the original social purpose has been lost.

But there are a fair few risks associated with investing in financial assets too.