A free cup of coffee

Economists have long argued that there is no such thing as a free cup of coffee. The argument boils down to the opportunity cost – the concept of looking at the alternative that was forgone. For example, if someone was handing out free cups of coffee, the cost of the cup would be the lost wages from the time spent standing in line to get it. If you made $6 an hour (or 10 cents a minute) then the ten minutes that it took to stand in line meant a loss of $1. Essentially, the cup of coffee ended up costing $1. There are at least three problems with this argument:

1. A salaried individual at a firm that forbids employees from working anywhere else is not eligible for a job that pays an hourly wage.
2. There are often caps to the number of hours you are allowed to work (as international students in the U.S. or U.K. will tell you) and so an hourly wage doesn’t apply once the limit is hit.
3. Welcome to the world post September 2008 – there just aren’t any jobs out there. Hard working ’08 college grads will tell you that even jobs that pay by the hour are few and far between

So, if we rule out the opportunity cost, we come to the price of the coffee itself. Most profit-oriented organizations don’t hand out free coffee to all passing by. But what if there was a way to make some free money that covered the cost of the coffee? What if you could come away from a diner with as much money (or more) as when you entered but with some java in you as well? The article below tells you one way to do it.


In a remote corner of a tiny little town called Cloverdale in Indiana sits the much talked about Truck Stop. Much talked about by the students of a nearby university that is. And perhaps some truckers passing through town who frequent the establishment on their way. The Truck Stop is popular for a number of reasons – it’s open all night, it’s close to campus and a great place to get some work done, it’s fabulous for psychology students looking for people to study etc. etc. My brother and I, however, went there for an item on their menu. Coffee. Black. Bottomless. Served thick – like diesel. If two cups of black coffee at the Truck Stop didn’t get you through your all-nighter, you were probably a descendant of Rip Van Winkle.

A cup of coffee at the Truck Stop cost a little over a dollar when I was last in there three years ago. A dollar and thirty cents I think. They also had an arcade game machine at the back. You put in a quarter that dropped down into a pile of quarters and a flat plastic brush pushed the whole lot towards the edge. If you were lucky, a few coins would be knocked over and you’d come away having made your initial investment and more. If you got two quarters back, you made 100% return on the investment - 25 cents to recover the principal and 25 cents in profit. If you were unlucky, you got nothing. It’s not a bad game – your downside is 25 cents and your upside is in 25 cent or 100% increments. Two quarters back implies 100% profit, three 200%, four 300% and so on. That is if you’re playing with quarters.

Enter currency arbitrage. The old Indian one-rupee coin is very similar in shape, size, and weight to a US quarter. The difference, however, comes in with the exchange rate. Approximately fifty Indian rupees make a dollar. Four quarters make a dollar. Therefore, fifty rupees make four quarters or twelve rupees and fifty paise (or INR 12.5) make a quarter. As far as this game is concerned, it means that it would cost you the same whether you used twelve Indian one rupee coins or one US quarter. Now this isn’t a game purely of chance where each try is independent. Your odds of winning the game go up as you play it more. As the pile of coins gets bigger, you’re guaranteed to hit a critical mass and knock some over. The question is whether or not you knock out as many as you’ve put in. The odds change when you’re playing with Indian rupees. By my estimates, you were almost certain to knock out at least one quarter if you played the game four times (i.e. put 4 coins in). One quarter for the cost of four rupees is 212.5% profit. One quarter for a rupee is 1150% profit. This meant guaranteed returns between 212.5% and 1150% based on how many times you played. Better returns than the most exclusive hedge fund in New York. Who says you can’t have a free cup of coffee and make some money on the side?

Caveat: I’ve done this only once because I didn’t have enough rupee coins on me. For the record, the machine said “insert coin” here, not “insert US quarter here”. Also, this only works when the quarters far outnumber the rupee coins i.e. as long as you’re spending in rupees and earning in dollars. The logic also works with coins in any other currency as long as the exchange rates are favorable (the math will change of course). Finally, the institution isn’t particularly culturally sensitive and the man behind the counter probably has a shotgun. Play at your own peril.

PS. I realize that there actually is an opportunity cost associated with buying coffee with your winnings – it’s the cost of the interest you forego. Playing the game is cost-free because of the reasons listed above. Well, you don’t have to buy coffee. You could put your money in the bank and watch it grow – slowly. It’s free money.