In response, Adam Smith pointed out in The Wealth of Nations:
Nothing is more useful than water; The goods that can be exchanged with it are very limited; Very few things can be exchanged for water. On the contrary, diamonds are useless, but they can be used for a large number of goods.
the paradox between diamonds and water is the common saying in China: things are rare.
according to this phenomenon, Adam Smith explained it with axiology, namely exchange value and use value. The use value of water is high, but it has little exchange value; On the contrary, although diamonds have low use value, they have high exchange value.
Explain with marginal utility
Water is important to life, so it should have high value. On the other hand, diamonds are not important to life, so people should think that their value is lower than water. However, even if water can provide more utility, it is still much cheaper than diamonds.
Diamonds are really far less useful to people than water, so the total utility people get from the consumption of water is far greater than the total utility people get from the use of diamonds. However, the demand price of goods is not determined by the total utility of goods but by the marginal utility of goods, that is, P=MU/λ.
As a luxury, diamonds can bring people show off and other effects, and the quantity is very small, so increasing the consumption of diamonds by one unit brings great benefits to consumers, that is, the marginal utility of diamonds is great, and consumers are willing to buy with more expenses. Although water is indispensable to people's lives, it brings great utility to people. However, due to the large amount of water in the world, the added utility of one unit of water is very low, that is, the marginal utility of water is very low, so the price of water is naturally very low.
marginal utility theory explained that there is a problem, that is, although there is a lot of water, if the amount of water is very low in the desert, the value of water is as high. Just like solar energy, although there must be a lot of solar energy next to the sun, it is not efficient for people on earth to obtain solar energy, so solar energy is as valuable. If large-scale water intake equipment can be invented in the desert, The water there is just as cheap, so it is efficiency that determines the value, and the tools that determine the efficiency, labor and resources.
According to Tan Lidong, an economist in China,
It means that water is abundant in general areas, and the tools that carry water do not have much labor. It is generally recognized that whoever carries it belongs to his water (property). Therefore, the production efficiency is considered high in general areas.
since the primitive society, our products, resources and labor have been used for exchange. At that time, there were few products and resources, and imitation was relatively simple without patent restrictions. After a period of time, products will enter the practical stage, and new resources, products and their labor will continue to join, but in other products that have entered the practical stage, new products can be given a natural price. Therefore, our exchange system has always had a relatively stable commodity pricing system since ancient times, including the currency system that appeared later.
"After water becomes a practical product in a certain market, its production efficiency is very high, and its pricing is bound to be very small. Therefore, the wealth exchanged for each portion of water is also very small.
The luster and glittering and translucent of diamonds are consistent with the common people's longing for bright aesthetics. It appears as a symbol of wealth of spiritual needs. Because of its scarce resources, its production efficiency cannot be improved, so in other societies with higher production efficiency, the higher the price of its goods, the more wealth it can exchange.
the product practical stage refers to the stage when the product technology and tools have been widely known.
if you don't understand, you can understand from this example.
"Comparing the production of pins with the production of clothes, if the capital production efficiency of enterprises producing certain pins is E=1, pieces/person compared with manual production, the capital production efficiency of enterprises producing certain clothes is E = 1 pieces/person compared with manual production. Suppose that if the capital invested by the two companies is equal, then the pricing ratio of the two companies is n = P1/P2 = 1,/1 = 1,. That is to say, in the trading market, people initially set a price ratio of 1, for a certain pin and a certain clothing. Although in the primitive state, the production efficiency of people's pins is E=1 piece/person, and the production efficiency of clothes is E=1 piece/person, and the efficiency of pins is much larger, it has nothing to do with your past improvement of production efficiency in the practical stage. At that time, the excess profits that should be earned and the measurement coefficient that satisfies producers will only be produced in the experimental, promotional and competitive stages. But on the other hand, if everyone else improves the efficiency of capital production and you don't, it will be difficult for you to compete and survive when the measurement coefficient becomes unfavorable.