I had thought about writing something about gift giving before Christmas, but it might have looked as though I was complaining about how difficult it can be to buy gifts for people who seem to have just about everything they need already. (Perhaps I might even now be wandering into dangerous territory.)
In the past, economists have had some difficulty in understanding why people exchange gifts. The reason is that since the satisfaction that a person obtains from consumption spending is determined by her or his personal preferences it is difficult for anyone else to know what she or he would like. (I hope this is getting me out of trouble rather than digging a deeper hole.) Thus, some people end up with gifts they don’t want. (Fortunately, this rarely happens to me!) The remedy some economists have proposed is predictably crass: give money not goods. Neerav Bhatt has provided an entertaining discussion of this view here, including a clip from an episode of Seinfeld showing Elaine’s reaction to Jerry’s gift of cash for her birthday.
Greg Mankiw provides a good economic explanation of gift-giving in terms of signalling theory. If a person is able to provide a thoughtful gift - despite the difficulty of discovering what the receiver would really like - this sends a signal of the feelings that the giver has toward the receiver.
I suppose that is how gift giving helps to strengthen bonds. It can be wonderful when that happens. (In my experience it is most likely to happen when the potential receiver of the gift is willing to send some signals by dropping a hint or two about what she might like.)
The exchanges of gifts among members of social and business organizations at Christmas functions etc. is presumably also intended to promote bonding. One approach, which is probably fairly common, is for everyone attending such functions to buy and wrap an inexpensive gift, with all gifts being distributed randomly at the function. A member of a club that I belong to recently proposed a different approach: the names of all members would be put in a hat and each person would draw out a name and buy a gift anonymously for that person. This might have resulted in more people being given things that they might appreciate and might have helped to bond individual members of the club to all other members. It seems likely that if you know that the person who has given you a gift that you appreciate is a member of the club, but you don’t know who it is, you might have good feelings towards all other members. (As it happened, the club decided to continue with the practice established a couple of years earlier of donating gifts for children to a local charity rather than exchanging gifts between members. It would be interesting to know if the proposed method of gift exchange has been used elsewhere and what the effects have been.)
As Ridley suggests, there is no reason to suppose that traders in all cultures have not always been acutely aware of the desirability of getting a good bargain for the valuable items that they are exchanging. There is some evidence that money can change the way that people perceive exchanges, but this seems to me to be based on misconceptions about money. An exchange of goods with strict reciprocity (barter) might appear more like an exchange of gifts than a commercial transaction, but people are fooling themselves if they think it is different in important respects (other than possible tax avoidance) from an identical exchange facilitated with the use of money.