EXCHANGE BEHAVIOUR: THE UNIVERSAL HABIT OF THE HUMAN SPECIES IN GIFT GIVING AND MARKETS
Kevin Albertson, Reader in Economics at Manchester Metropolitan University posts on The Conversation (‘Academic Rigour, Journalistic Flair’) HERE
His post is about Christmas gifts being better value to the recipients than their
purchases, net of a gift not perfectly matching a person’s preferences (measured
by what she would be inclined to purchase, under the usual neo-classical
assumptions, and the difference in happiness that she feels is more than made
up for from her personal joy at receiving a free gift from somebody she knows
cares about her):
“Priceless: the inefficient, but merry economics of Christmas”: “The value of affection”
“Casual observation indicates many of us appreciate gifts more than those items we require or buy for ourselves: consider the giving of birthday presents, flowers, and such like. This is despite the fact that, according to strict neo-classical economic theory, such giving is inefficient. Waldfogel makes this clear in Deadweight loss of Christmas.
According to Waldfogel, the inefficiency arises because when we give, we might not perfectly match the recipient’s preferences. He estimates that giving “destroys” between 10% and 30% of the value of a gift. However, it strikes me Waldfogel has not figured in how much value is added, even to a simple pair of socks, because of the affection with which it is given.
The extra value imbued in a gift is something with which many economists have difficulty. Adam Smith doesn’t mention it in the Wealth of Nations:
“It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest.”
I agree with Conversation’s affirmation of ‘academic rigour and Journalistic flair’ and Kevin Albertson exhibits both.
However, I am struck by two things about Kevin Albertson’s arguments.
First, he does not mention until the very end Smith’s “Theory of Moral Sentiments” published in 1759 before he wrote “Wealth Of Nations”, published in 1776. Both books were linked philosophically and are mutually supportive. (There is no Das Adam Smith Problem!).
Much of what his readers might take from his piece would be undermined if they confine their reading solely to ‘Wealth Of Nations’ under the mantra of ‘academic rigour’. Neo-clasical and Rational Utility Maximisation (MaxU) economics (despite their mathematical sophistication) describe an imaginary economy.
Secondly, he quotes Smith’s exposition on “bargaining” without discussing it, other than by his implied dissatisfaction with it.
“It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest” (WN I.ii.2p 26-7).
If the whole paragraph is examined more closely - and also Smith’s earlier statements to his class of students, as reported by a Student’s Notes of them in his ‘Lectures on Jurisprudence’ (1761-2), we find an accurate statement of Smith’s views on the positive role of how self-interest in people’s interactions with others in pursuit of their mutual feelings of ‘self-love’, which differs by a mile that by which neo-classical economists describe exchange behaviour (utility-maxisation and all that).
Two self-interested bargainers who pursue their self-interests as egoistic, utility-maximisers, would end up without the ingredients of their dinners or the money value of their exchange prices.
Smith showed they bargain using linked offers in the form: “Give me that which I want, and you shall have this which you want”, which “is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of the good offices which we stand in need of” (WN I.ii.2 p. 26).
Moreover, after the lines quoted by Kevin Albertson, Smith goes on to say, possibly the most important part of the partial paragraph that Kevin quotes:
“We address ourselves, not to their humanity, but from their self-love, and never talk to them of our own necessities, but of their advantages”.
This changes the context of seeking our self-interests from a competing set of mercenary demands into persuasive, exchanges of what one gives to another for what one gets in exchange. In TMS, he talks throughout about the moral elements of friendly persuasion, of ‘higgling’ and haggling, of exchanging ‘good offices’ and realising ‘mutual dependences’ and the need of every man to co-operate with those with whom he has contacts.
The gift exchange, universally, is long and deep in human history (and pre-history) as anthropologists have shown, and sociologists confirm. The Gift exchange preceded the monetised exchange by many millennia, as did what we call Barter (goods for goods) and its other exchange forms of labour (including sexual exploitation) for goods (’Truck’).
Kevin Albertson notes: “Many of the best things in life are not necessarily “free”, but neither can they be bought and sold: they arise from our relationships.”
I heartily agree, only adding that Smith was thinking of human relationships in deep history (though it was much deeper than he, or anybody else, at the time realised) when he wrote that exchange ‘was the necessary consequence of a certain propensity in human nature … the propensity to …exchange one thing for another …it is the faculties of reason and speech … and common to all men”.
Kevin is right that many of our interpersonal transactions ‘arise from our relationships’ and they contribute to human welfare, even in the most trying of circumstances, such as natural disasters and personal setbacks, which is a personal and poignant experience I have had these past months with my health situation. That is another reason to recall the depth of meaning in Smith’s account of the longevity and multiple reminders of the human proclivity for exchange behaviours.
Hence, I am participating in the current ‘Beardember’ charity campaign by not shaving until December 31 and collecting sponsors and their cash for those experiencing colon cancer.