Nothing is really free: every benefit is paid for by someone, somewhere, in money, time or forgone alternatives.
The phrase recalls the free lunch that American saloons offered drinkers in the nineteenth century, paid for through the price of the drinks. Robert Heinlein popularised the acronym TANSTAAFL in The Moon Is a Harsh Mistress (1966), and Milton Friedman used the phrase as the title of a 1975 book.
In practice
- A free app pays for itself by selling its users' attention to advertisers.
- A free gift with purchase is priced into the purchase.
- Possible explanations
- One explanation is opportunity cost: resources used for one thing cannot be used for another. Another is that apparent gifts shift costs onto less visible payers.
- In its favour
- Expresses the principle of opportunity cost, accepted by every school of economics.
- Against it
- Some goods cost almost nothing to share once they exist, such as knowledge and open-source software, and gains from trade and innovation can leave everyone better off. The phrase can be used to dismiss genuinely positive-sum arrangements.
- Standing
- Compare opportunity cost and Sumner's forgotten man.
- Subject
- Economics & Incentives
- Essay
- Rules for choosing, and the paradoxes that humbled the theory