Consider a diagram $cdots to F_3 to F_2to F_1$ of algebraic systems, where $F_n$ denotes the free object on $n$ generators and the connecting maps send the extra generator to some distinguished trivial element. We prove that (a) if the $F_i$ are free associative algebras over a fixed field then the limit in the category of graded algebras is again free on a set of homogeneous generators; (b) on the other hand, the limit in the category of associative (ungraded) algebras is a free formal power series algebra on a set of homogeneous elements, and (c) if the $F_i$ are free Lie algebras then the limit in the category of graded Lie algebras is again free.
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