Exchange gifts. Forget the economic logic

The gift economy operates on something called reciprocal altruism

Spend much time with economists around this time of year, and you will, eventually, get around to hearing about the dreadful inefficiency of exchanging gifts. You desperately wrack your brains for something, and then buy a supply of scented bath oil for someone who has only got a shower; they return the favour by giving you three books you already had. This is, an economist will solemnly point out, an extreme waste of resources, because each of you would have been happier taking the same amount of cash to buy something for yourself.
 
This observation is frequently greeted with cries of “Scrooge!” And yet on one level, it’s obviously true, as attested by the vast stocks of unused scented bath sets accumulated by mothers, grandmothers and aunts in their linen closets. And yet, on another level it’s just as obviously false: Even if you are the sort of rational calculating machine who shows up in economics models as Homo economicus. There is a higher logic to the gift economy, a metarationality, that mandates we keep giving and receiving objects of dubious value rather than giving one another money or just abstaining from the exchange of gifts.
 
We think of “the economy” as a single vast sphere, where cash is king and caveat emptor. But in fact, every American lives in two economies: the market economy, dominated by arms-length transactions with strangers; and the “gift economy,” regulated by what anthropologists call reciprocal altruism. Market transactions are specified exchanges of value for value, with few residual obligations on either party once the contract has been executed, the sale completed. Reciprocal altruism is a lot fuzzier; it’s a sort of favour bank, where you and I (tacitly) agree that we will help each other out without knowing when or how that help might be demanded.
 
Reciprocal altruism has some benefits over market exchange, which is why smaller groups generally at least partially rely on it. It lowers what economists call “transaction costs”: the non-cash costs of coming to an agreement. These can include things like finding someone who will sell you what you want, negotiating a price, and paying a lawyer to draw up a contract. I don’t need to negotiate a price with my sister when I ask her to drive me to the airport, or call a cab company, or worry that the cab won’t show; she’ll show up because she’s my sister.
 
Reciprocal altruism also has some higher costs: You have to put more work into signalling loyalty to the relationship, often by putting favours into that favour bank; you generally can’t just decide that you’d rather not trade today. You stand by your brother in a fight, even if that fight is unwise; you take your friend to the doctor, even if you have other important things to do and your friend is a hypochondriac. But there is a pay-off to this: When you have a crisis, and really need them, those people are going to be there for you no matter what time of night, or how costly it may be.
 
Reciprocal altruism is a universal insurance policy that neither the market nor the government can fully replace.

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