Making Money…Less Useful? – Econlib

Gift cards have become a staple in the world of gift-giving, but have you ever stopped to wonder who first came up with the idea? One writer recently joked about meeting the person who pitched gift cards, questioning why consumers would willingly make their money less useful by purchasing them.

This concept of making money less useful goes against the traditional economic theory put forth by Carl Menger in his book “On the Origins of Money.” Menger argued that money naturally emerged through the trading of more “saleable” goods. Saleableness, a term similar to liquidity, refers to the ease with which a good can be sold without having to drastically lower its price. For example, Girl Scout cookies are highly saleable due to their broad appeal, while a house may take months to find a buyer.

Given Menger’s theory that people tend to trade for more saleable goods, the idea of purchasing gift cards seems counterintuitive. After all, gift cards can only be used for specific goods, making them less saleable. So why do people still buy them?

One possible explanation is that the purchaser may have specific reasons for choosing a less saleable form of currency. For instance, one man kept McDonald’s gift cards in his wallet to give to homeless individuals, as he believed they would be less likely to exchange them for drugs. In this case, reduced saleableness served a specific purpose.

However, in most cases, people buy gift cards to cater to the interests of the recipient. This shift towards gift cards as a popular gift-giving option can be attributed to social norms. While cash gifts are common for children, they are less acceptable for adults, as thoughtfulness becomes more important in gift-giving. Gift cards offer a way to increase the saleableness of a gift while adhering to social norms that discourage giving cash.

When it comes to giving gifts to adults, gift cards provide a more specific alternative to cash that still allows for a thoughtful gesture. While they may be less saleable than cash, they offer recipients the flexibility to choose their own gift, making them a popular choice for gift-givers.

In conclusion, the billion-dollar gift card market aligns with Carl Menger’s theory of money emergence. Despite their perceived lack of saleableness, gift cards have become a convenient and thoughtful gift-giving option that satisfies both givers and recipients alike. Next time you purchase a gift card, remember that you are contributing to a market that exemplifies the principles of economic theory.