It is illogical and inefficient to give festive gifts. But it still makes sense

'An economist calculated upto $13bn was wasted getting people things they would not have bought for themselves'

There are times when economists are pretty hopeless, and Christmas is one of them. It is the biggest festival of consumption of the year: the eating and drinking, the parties, the sheer excess of it all. But it is also a time of giving: the giving of last-minute presents, plus a few "spares" for unexpected guests at Christmas lunch; but also the giving of something ultimately more precious, the giving of our time to others. Most of us try to set aside some time for other people in ways we might not bother with at other times of the year.

There are times when economists are pretty hopeless, and Christmas is one of them. It is the biggest festival of consumption of the year: the eating and drinking, the parties, the sheer excess of it all. But it is also a time of giving: the giving of last-minute presents, plus a few "spares" for unexpected guests at Christmas lunch; but also the giving of something ultimately more precious, the giving of our time to others. Most of us try to set aside some time for other people in ways we might not bother with at other times of the year.

Why do we do it? Well, there has been some sort of festival around the turn of the year since prehistoric times, probably - for those of us in the northern hemisphere - to celebrate the relief that the days are at last getting longer. Most of us will say aye to that: it is the shortest day today, and the ever-darker afternoons have been almost as depressing as the wet and the trains. The office party is the natural successor to the cave-dweller's relief that the sun's warmth will return.

But that does not explain the giving. To an economist, the exchange of gifts is inefficient. We buy things for other people that they don't want, and they buy things for us that we would not ourselves choose. A study in America in 1993 asked people what they would be prepared to sell their Christmas gifts for. It then tallied up how much had been spent on them. Unsurprisingly, the value of the sales was much lower than the amount spent. The economist calculated that between $4bn and $13bn was wasted by people receiving things they would not have bought for themselves.

But sometimes a thing you would not have bought for yourself makes the most wonderful gift. Presents broaden our experience of life. If my spouse had not given it to me, I might have missed the book I am currently reading, Peter Ackroyd's London: The Biography. It is an extraordinary celebration of London's variety and continuity as a world city for 2,000 years. (Here is an example of the continuity, though not the variety, chronicled by Ackroyd: next time you are involved in a spot of road rage and are told to "fuck off", console yourself that you are playing your role in a long tradition of street theatre. The same term of abuse rang through the streets of London 700 years ago.)

There is another feature about giving that distinguishes it from regular economic transactions. Both sides of the transaction derive pleasure from the gift. In purely economic terms, the giver is forgoing some other activity or purchase. Money spent on a gift for someone else is money not available for spending on yourself. But we do it because most of the time, at least, we enjoy it. The exchange of gifts is part of humankind's need to find ways of bonding, so that we can co-operate more effectively.

Giving is extraordinarily complex, involving social and economic obligations as well as a desire to create pleasure. At one extreme, a gift could be a bribe; at the other, an example of pure altruism. The custom also goes back a long way. One of the most celebrated books of the season is Natalie Zemon Davis's The Gift in Sixteenth-Century France, which looks at the interaction between gift-giving and society in that period.

Among the questions that Professor Zemon Davis seeks to answer is this: are gifts always a part of human relations - or do they lose their power and importance once the market takes hold and puts a price on every exchange? She also notes that "the present most readily circulated among learned friends, sometimes with formal dedications, sometimes with a letter" was... books.

That's nice. But we don't give only to people we know; we also give to organisations, most notably to charities. One of the pressing social issues is the extent to which charities can - and should - seek to take over functions that have for the past 50 years been seen as the responsibility of the state. The frontier between the state and the voluntary sector is shifting toward the latter, but in a haphazard way.

There is also the issue of funding: we want to give but we also want to be encouraged to do so. The advance of the state during much of the post-war period not only squeezed the functions of the voluntary sector, it also undermined its funding. Giving money to a charity involves a quite different relationship from paying tax to the state, but the rise of taxation probably undermined the willingness to give. The US avoided any such effect by granting lavish tax breaks for charitable giving. In fact these breaks were used to offset the rise in taxation: many rich people used charities to tax-shelter their income. Here, in Britain, governments of both parties have been gradually creating a more tax-friendly environment and thereby supporting the culture of giving. But we are far behind the US.

Just where the frontier between the voluntary sector and the state should be will remain one of the great political debates for the foreseeable future at least. In fact, it is unlikely that we will arrive at any final consensus on this issue, because attitudes both to taxation and to giving will keep on changing. But the fact that people who give of their own free will almost always feel good about it will tilt the balance in that direction. After all, while most people would regard paying taxes as a necessary and proper civic duty, many others see it as a rip-off by inefficient bureaucrats and sleazy politicians.

Giving has a further advantage. Perhaps the most valued of all gifts that anyone can make is that of time. That can be giving time to friends and family, but it can also be giving time to voluntary organisations.

If you pay tax, you hand over responsibility. You cannot easily give your time to the Government, and people who do (maybe unfairly) are usually assumed to be doing so because they or their businesses will get something out of it. Either that or a peerage.

But people who give their time to charities or to local communities usually do so out of a sense of community. They get interest out of it, of course, but they also take on an element of responsibility, of involvement. That element of giving is surely something that is worth capturing and using. It can bind 21st-century Britain together, just as it bound 16th-century France together. Economists do not find it easy to understand that. Historians do.