The first principle of economics is: Everything has a cost. This applies equally well to financial, political and social economics. It’s the very foundation that the current form of our society is built on. It’s a common misconception that cost can only be paid with a monetary price, such as money. But ultimately cost can be paid with other things.
The term “There ain’t no such thing as a free lunch” dates back to the 19th century where saloons in America used to serve free lunches to patrons who had purchased at least one drink before. The trick, however, was that the food always contained a lot of salt (e.g. ham, cheese and salted crackers), which in the end lead to thirsty patrons buying more drinks and thus generating a larger profit for the saloon.
However, the fact that you can’t get something for nothing is as old as physics and economics themselves.
What is cost?
According to Wikipedia’s definition of cost, it’s a metric that is totalling up as a result of a process, or as a differential for the result of a decision.
There are two types of costs; private and external. Private costs are costs directly imposed on the buyer of goods or on the decision maker in a process. External costs are those carried by parties other than the buyer or the decision maker. These costs can sometimes be non-monetary and hard to quantify, such as environmental pollution.
The sum of private and external costs are sometimes referred to as social costs.
As I hinted at the beginning of this post, not all costs are monetary. For example, when deciding between mutually exclusive alternatives, the opportunity costs is the loss of potential gain from the alternatives you did not decide on.
Driving a car from point A to B has a private cost of X litres of gas. There’s also an external cost (summed up as a social cost) paid in polluting the environment. The gas that costs you money was the result of an earlier transaction at the gas station (not the transaction of driving your car).
Throwing away used clothes could deceivingly be seen as an act without a cost. But there are at least two costs in this scenario; the opportunity cost of no longer being able to sell the clothes for money to someone who wants them, and an external cost on the environment for filling up landfills.
Many people think of using Facebook as something that does not cost anything. But in reality, there are big opportunity costs to using Facebook. You pay with your privacy and personal data which Facebook makes big monetary profits from.
When talking about free software it’s important to understand that ‘free’, in this case, refers to the lack of constrain (i.e. freedom) and not the lack of cost (i.e. gratis). Because there are some opportunity costs with using free software, e.g. accountability. That is, you pay with losing the opportunity to rely on a company to be accountable when you need help with the software (e.g. fixing a bug).
Why is this so important?
A recent trend in our digital economy is that companies are “hiding” costs in non-monetary things such as privacy and freedom. Products and services didn’t suddenly start to cost nothing (e.g. Facebook, Google Search, Android), they are just making profit from you in a different way.
If we want to change our society into a place where we no longer pay with our trust, freedom, privacy or personal data, we must become comfortable with the fact that it will have to cost something else. That cost might be a social cost, or some kind of monetary value. There’s no such thing as a free service, nor indeed a free lunch.
What do you think? Are there things that are truly free? Please leave a comment below with your thoughts!