TANSTAAFT

by Don Boudreaux on February 8, 2007

in Economics

In a comment on Russ’s recent post on global warming, "ben" says

Actually you are surrounded by free lunches. You are typing on one, wearing one, and you drive one. Technology is a free lunch.

Although I understand ben’s point — and agree with what I take to be its thrust — I disagree with it.  It’s true that technology — indeed, the entire global division of labor — brings to each of us goods and services that, in the absence of this system, none of us would enjoy.  Each of us consumes incalculably more than each of us could, on our own, produce.

But at the risk of being pedantic, these things aren’t free.  They exist only because people put forward their time and energy and resources to help produce them.  There is a cost to our prosperity — but it is a cost well worth paying.

Here’s an analogy.  A friend of a friend (so I’m told!) once bought a copy of Adam Smith’s Wealth of Nations in a used-book store deep in the heart of the state of Georgia.  The buyer paid just a few dollars for the book (say, $10).  The buyer soon discovered that the book is a first edition.  The buyer then sold the book for a princely sum (say, $10,000).

Is it accurate to describe his profit here as free?  I think not.  It cost the person who got it $10.  True, in this case, the profit was unusually large and unusually unexpected.  But, nevertheless, it did not fall upon the person free of charge.  He — the person who profited — had to sacrifice something of value to get the profit.

Even if the bookstore owner had given the book to the customer free of charge, the profit would not be free.  Someone — in this counter-example, the bookstore owner — incurred a cost in order to give rise to the profit.

I think it to be a mistake to identify genuine profit — true benefits whose values unambiguously are greater than the costs people incur to create these benefits and to secure these benefits — as free.

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{ 7 comments }

Russell Nelson February 8, 2007 at 10:48 am

I think that Ben simply meant that information can be freely shared. The limit to doing so can be seen in the Open Source world, where software is freely downloadable. It's not a free lunch to decide which software to use (but reducing those costs are one thing a distribution does.)

concerned for freedom February 8, 2007 at 1:15 pm

I think more accurately the price he paid for his lunch, even if he received the book for free, would be the time and effort he spent going to the bookstore over any other use of his time. This would be his opportunity cost, which obviously was well worth paying. Since he did pay cash for the book, the “price of his lunch” was both the $10 and the time and energy spent.

ben February 8, 2007 at 3:30 pm

I think the difference here is net vs. gross. For example, when I walk through a supermarket it always blows me away to think how long it would take for me to produce and package the goods in my basket: years and years of my labour, maybe centuries. Yet I can purchase those goods in exchange for only a few minutes of my time. The free lunch is the difference between the years it would take me to produce and the minutes I need to help pay countless others to invent and produce these goods. Of course, I still paid something – in gross terms nothing is free – but ultimately it is the net that I care about.

Randy February 8, 2007 at 4:17 pm

Ben,

I do see your point. I just use different terms. I think of free time as a form of wealth created in trade. But I still have to trade to get it.

Adam Malone February 8, 2007 at 5:12 pm

In Don's example there is also another "cost" that was unaccounted for. The knowledge that an Adam Smith original edition would fetch a nice sum of cash came with some form of cost.

That cost would include the time it took him to learn something about book collectors, Adam Smith, most likely some tuition to a school, etc. Technology often seems like a free lunch but it takes some time to learn how to properly use it.

Most of my generation (I am 23) seem to have been born with the ability to do things on the computer. But this ability/knowledge did not just seep into our heads. It came with a cost of our time and the investment in a computer by our parents, our schools, etc.

Technology isn't a free lunch…it just makes our lunches a bit cheaper.

blink February 8, 2007 at 7:15 pm

Undoubtedly technology does not improve without incurring costs. One unique feature of technology, however, is that the overwhelming majority of costs were incurred by previous generations – like the bookstore owner in the example, except that many of these peopel are long dead. So, in relative terms, that televisions, radios, cars, and the internet are available at all seems like a “free lunch.”

Adam Malone February 9, 2007 at 2:38 am

Thank you for putting in the "seems".

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