Every libertarian is familiar with the term TANSTAAFL, the abbreviation of the sentence "There ain't no such thing as a free lunch," from the bestselling science fiction novel The Moon is a Harsh Mistress, where a group of libertarian radicals overthrow the government of a lunar colony. This idea, that free stuff is an illusion and doesn't really exist, and that when someone tells you they are going to give you something for free it is a scam, is common among libertarians.
Here I will not present the idea as such, but, taking this idea for granted, I will show its justification in GOLD economics. GOLD posits that an economy is merely a group of individual humans, each of whom produces wealth, trades this wealth to other individuals in return for wealth they wish to consume, and consumes this purchased wealth.
The economy, even in a highly advanced country, is fundamentally a barter economy where goods and services are traded for goods and services, but money has developed as a mechanism to make large trades among many different people possible. For example, if I make eyeglasses and you make pizzas, and I want to buy a slice of pizza, you might not need or want my eyeglasses, but there might be a pair of shoes that you want. So, instead of trading you eyeglasses for pizza, I trade you money for pizza, with the guarantee that this money is backed up by a pair of eyeglasses. You might then buy shoes from a shoemaker whose daughter is nearsighted. The shoemaker then buys eyeglasses from me for the money, and money facilitated a trade between three people, each of whom produced, traded, and consumed goods and services--but the money just as easily could have facilitated a trade among 300,000 people instead of just 3, and in today's economy, this describes what happens.
When I make the pair of eyeglasses, I "make money", which means that I create the wealth which is represented and symbolized by the money that I gave you to pay for the slice of pizza. You accepted that money because you can use it to buy any product from any seller for that amount of money, and the sellers will all accept it because it is backed by my eyeglasses that they can be buy with it, and by all wealth in the pool of wealth in the economy that can be purchased by money.
As I argued in an earlier blog post entitled Introduction to Hasanian Economics, theft is actually an inaccurate trade: a thief takes money without producing anything and uses the stolen money to buy something, and the seller mistakenly is forced to believe that he is trading that product he sells to the actual producer of the wealth which justifies this money, and not to a thief, because it is assumed that a person who owns money owns it rightfully. Because each dollar bill is not clearly labeled with the identify of the producer who made that money, i.e. the person who created the wealth that backs that money, it is possible to take money by theft instead of by trade, and to spend it to then get goods and services that rightfully belong to the person who made that money. I will argue that, in some instances, free stuff is like theft, while in other instances, it is like a trade where one person produces wealth but a different person consumes the wealth obtained from trading it.
So, according to GOLD, wealth is created, traded, and consumed. What happens when something is given away for free instead of being traded for something else? There are three possibilities:
1. Someone created wealth and gave it to someone else who consumed it without trading any wealth back to the producer. In this case, it truly is free, in a sense, from the point of view of the consumer, but only because the producer paid for it, and so it was not free for the producer. A gift fits this description, as does charity. In this case, the producer really pays for the wealth that someone else consumes, because the person who made the money decided to give that wealth, in the form they wished to consume it in, to a different person other than themselves.
2. Someone says that something is free, when in reality it has hidden costs that pay for it. For example, when a business provides a free lunch buffet at a presentation of their sales pitch, the lunch is actually being paid for by the money they will make from sales off the people who are drawn in to eat it. If it wasn't ultimately profitable, to pay for the lunch, the sales pitch, and all other costs, the business would not do it. So the "free" lunch is actually paid for by some of the people who eat it, namely, by the ones who are hooked by the sale pitch at the luncheon and buy the product. For the business to say it is free is a lie, and it is a scam and a con game. For another example, on the web there are dozens of dating sites that claim to be "free", and 99% of them are scams where you join for free and then have to pay to fully utilize the site. Generally, if someone offers you something for free, it is too good to be true.
3. It was produced by someone, but has been taken by force and given to someone else to consume. This is like theft, in that the existence of a money economy is used to con and scam the people into not seeing who has created the wealth that is being consumed. When a government says that it is giving something to the people for free, this is inevitably what it means: that someone created wealth, and the government is taking that wealth by force and giving it to someone else for free.
4. There is a more limited category, where people say that something is free, but only because it is paid for in kind with goods and services, not with printed money. For example, in computer programming there is famously a "free software" movement, where software engineers make software and give it away for free to other software engineers. But here, there is actually an invisible trade happening behind the scenes: the computer programmers give free software to the coding community, and at the same time these same coders take other people's free software and use it without paying for it, in a continuous give and take. There is no exact balance where what one gives equals what one takes, but the principle of trade is there. A trade is a trade and what you receive is paid for by what you give, whether it is paid for in money or in some other form of value. For another example, a social club might let members join for free, like a book club or Meetup, but in that case each member pays for his membership through showing up and participating and being social. In some limited situations, things must be paid for in values other than dollars, and people tend to call such things "free", when in fact they are paid for by non-money wealth.
From this analysis, several principles emerge, most of which I detailed in my book Golden Rule Libertarianism.
First, you cannot consume something that has not been produced, unless someone else produces something and then does not consume it. Wealth, at a given point in time, is finite, although along a line into the future it can grow or shrink. At any point in time, in an economy, a pool of wealth is created, and it is consumed (and, in this sense, being invested is like being consumed in the future). Each unit of wealth was produced by an individual producer in the economy, and is consumed by one. In this finite map of wealth, if one unit of wealth is consumed and there is no creation of wealth to compensate, the pool of wealth is minus one unit, so someone must go without--and this can be either evenly distributed (the taxpayers pay) or the producer can be robbed of the unit of wealth he produced. The government likes to pretend that when it gives things away for free that it created this wealth, as if it grew on trees, but this is obviously impossible. Someone had to create the wealth for people to consume, but, as in theft, people only see the money that pays for what they consume, they don't see the producer who "made" that money by creating wealth, since the producer behind the money is hidden in a money-based complex economy, since no individual can easily be attributed to any particular dollar in a trade with thousands of participants.
Second, if the government gives out enough free stuff, it bankrupts the economy. Each free thing that is given away is actually paid for by the wealth that was created by the people who make money. As we have seen, the created pool of wealth is finite. If more wealth that that amount is given away--and fuzzy accounting, and a divorce between production and consumption, could easily lead a government to try to give wealth away without paying attention to how much wealth is actually there to give--then the economy tries to consume more wealth than was created. If it trues to do this, it consumes all the wealth, there is no more left to consume, and this is how we define bankruptcy. This danger can be hidden early on by consuming the investment capital that the future is relying on, so we consume the wealth that belongs to future generations while leaving our own wealth alone--Social Security debts for future generations, and the massive amount of money the United States federal government has borrowed from the Federal Reserve, essentially borrowing against its own future--is an example. This can hide the threat until it is too late to reverse.
Third, in conclusion, there is no such thing as a free lunch, there is no such thing as stuff that is truly free, because there is no such thing as wealth that was not created by someone--it is a scam to get you to buy stuff, or to vote for someone, or, if it is a sincere genuine gift, it was free for you because the person who gave it to you has paid for it, and it wasn't free for them. People don't see the connections between money and the wealth that backs it, so, in today's capitalist economy, many people, and the government, and even some of the rich, throw money around without really worrying about the value that underlies it. GOLD illustrated the hidden connections between money and value behind the scenes to enable you to see what is really going on.