Recently, one of my brothers quipped about his desire to meet the visionary behind gift cards. After all, who would have imagined that consumers would willingly opt for something that makes their money less versatile?
This whimsical inquiry also holds significant weight for economists. In his seminal work On the Origins of Money, Carl Menger posits that money could have organically emerged without government intervention, as individuals gravitated towards trading more “saleable” goods.
Menger’s concept of “saleableness” aligns closely with our modern understanding of “liquidity.” A good that is more saleable can be exchanged more readily without necessitating a price drop. Take a house, for instance; it’s not particularly saleable since it may take months to find a suitable buyer. In contrast, Girl Scout cookies are much easier to sell—even children can manage that!
Given the difficulty in finding someone who is willing to trade exactly what you desire, Menger suggested that individuals naturally sought after more saleable items to facilitate their exchanges. Over time, the most tradeable commodities evolved into the money we recognize today.
If people inherently prefer more saleable goods, why then would they ever purchase a gift card? This is the crux of my brother’s jest. Gift cards, constrained to specific goods, seem to embody a lower degree of saleableness, don’t they?
However, the motivations behind trading aren’t solely driven by a desire for enhanced saleableness. For instance, I might willingly exchange cash for a chocolate bar, fully aware that I’m sacrificing liquidity. My craving for chocolate outweighs my concern for the money’s versatility. But gift cards are a different beast; they are intended as a form of currency. The typical buyer anticipates that the card will be used. Therefore, why would there be a demand for a currency that is ostensibly less saleable? Does this challenge Menger’s theory?
One possible explanation is that buyers often have a specific idea of what they want the recipient to purchase. In some cases, reduced saleableness may even be perceived as a benefit. For example, a man I know always kept $100 McDonald’s gift cards on hand to give to homeless individuals. He preferred gift cards over cash, believing they would be less likely to be exchanged for drugs. Though he couldn’t carry food everywhere, the gift cards provided a portable currency while still allowing him some control over what the recipient could buy.
But when your grandmother gifts you a $50 Amazon card, it’s unlikely she’s trying to steer you away from substances. More often than not, gift cards are purchased with the recipient’s interests in mind. So, how did these cards gain such traction in the market?
A significant factor could be social norms. Giving cash to children is widely accepted across cultures, yet as we transition into adulthood, cash gifts become less appropriate. In adult gift-giving, thoughtfulness takes precedence, especially since most adults are financially capable of making their own purchases. Otherwise, it would merely devolve into a cash exchange.
These cultural norms limit the types of gifts one can offer to another adult. If I wish to give my friend $20, I must spend time determining what she actually wants to buy, as any misstep could lead to a gift that misses the mark. This is where gift cards become intriguing: when social conventions inhibit giving cash, opting for a gift card can actually enhance the saleableness of that $20.
Consider this: if I aim to give my friend something valued at $20, I could purchase two Yankee Candles, a novel, or a bouquet from the grocery store. Regardless of my choice, she will receive that specific item with very limited resale potential. Conversely, if I buy her a $20 gift card to Target, I sacrifice the liquidity of my twenty bucks, but my gift becomes more saleable for her. The gift card provides her with a much easier way to redeem its value than trying to barter with Yankee Candles.
Now, how do gift cards navigate the social norms surrounding cash gifts among adults? They circumvent some objections effectively. If two adults exchange gift cards instead of cash, they each end up with something different than before. While a gift card is indeed less saleable than cash, it also meets the necessary criteria for thoughtfulness. Sure, it might be marginally less considerate, but gift recipients often seem to value the increased saleableness enough to overlook that detail.
So the next time you find yourself purchasing a gift card for a friend, there’s no need to wonder if Carl Menger is turning in his grave. The booming 1.24 trillion dollar gift card market is precisely the kind of phenomenon he envisioned.
