I came upon this on lifehacker:
If you do a job for free you can control the expectations of the client. You can tell them what the boundaries are and what they should expect of you. When they aren't paying anything they don't want to overstep those boundaries to piss you off. They are thankful for any work that they can get out of you.
This is why charging for free is a better option than charging cheap because people who pay money have the same expectations no matter what they are paying. If that is going to be the case shouldn't you be rewarded appropriately for the time you are taking?
When you charge a rate that you feel is underpaying you, you become a pain in the ass to the client and yourself. You begin to despise design because it feels like cheap labor. Your creativity suffers along with your work performance. Instead of focusing on the job at hand all you do is worry about the guy down the street making more money than you.
Here is the link: