JazzRemington
10th March 2007, 19:38
http://en.wikipedia.org/wiki/Paradox_of_value
Basically, even though water is generally more useful to humans in terms of bodily needs and diamonds are not, diamonds are bought and sold for higher prices on the market.
Various schools of economic thought attempted to solve this paradox. The Marginalists argue that its the subjective value-creation process of the individual based on relative scarcity that makes diamonds more valuable than water. Thus, I may value diamonds more than water because diamonds are more scarce than water so I may be willing to pay more for "a unit of diamond" than for a "unit of water."
For LTV, it's basically that it takes more social labor to produce diamonds than water, thus diamonds are sold at higher rates.
From my, albeit short, research on the topic, I've come to the conclusion that the Marginalist solution relies on too much abstraction and unmeasurable claims (something that they are charged with constantly). But the LTV theory does leave the question as to why people might view diamonds as more useful and why they would be willing to pay such a high price for them; however, this does not mean that the Marginalists were right in their solution. The Marginalists suffer from the similar problem.
Rather, it is my assertion that the basic of the LTV solution are correct, but missing one important key element: society. If there was no social usefulness to diamonds, then they would not be produced and they would not be sold.
What I mean here is that diamonds have a use to society. What kind of use, we cannot know for certain. Perhaps they like diamonds because they have become a way of showing off wealth (coming from the fact of their relative difficulty of production) or maybe they like the nice shininess of them. But for whatever reason, society values diamonds. It's not that diamonds are scarce, or that people individually and subjectively value diamonds. It's more along the lines of the fact that diamonds are valued more because of social factors. They are still bought and sold at high prices because of their relative cost of production, however.
Marginalists claim that "consumers would make a practice of seeking expensive wares without regard to their use." (1) But this is erroneous because 1) they are thinking within the faulty concept of Marginalism and 2) they do not take into consideration the social use of goods and services. As noted above, because diamonds have a use within society, they are sought out on the market, despite of their expensiveness.
I'm not sure this makes any sense, as I am typing this rather quickly in what little time I have available to me currently. My biggest fear is that this strays too closely to Marginalism. But what does everybody else think?
Footnotes
1: http://en.wikipedia.org/wiki/Marginal_util...er_and_diamonds (http://en.wikipedia.org/wiki/Marginal_utility#Criticism_of_the_marginalist_expl anation_of_the_paradox_of_water_and_diamonds)
Basically, even though water is generally more useful to humans in terms of bodily needs and diamonds are not, diamonds are bought and sold for higher prices on the market.
Various schools of economic thought attempted to solve this paradox. The Marginalists argue that its the subjective value-creation process of the individual based on relative scarcity that makes diamonds more valuable than water. Thus, I may value diamonds more than water because diamonds are more scarce than water so I may be willing to pay more for "a unit of diamond" than for a "unit of water."
For LTV, it's basically that it takes more social labor to produce diamonds than water, thus diamonds are sold at higher rates.
From my, albeit short, research on the topic, I've come to the conclusion that the Marginalist solution relies on too much abstraction and unmeasurable claims (something that they are charged with constantly). But the LTV theory does leave the question as to why people might view diamonds as more useful and why they would be willing to pay such a high price for them; however, this does not mean that the Marginalists were right in their solution. The Marginalists suffer from the similar problem.
Rather, it is my assertion that the basic of the LTV solution are correct, but missing one important key element: society. If there was no social usefulness to diamonds, then they would not be produced and they would not be sold.
What I mean here is that diamonds have a use to society. What kind of use, we cannot know for certain. Perhaps they like diamonds because they have become a way of showing off wealth (coming from the fact of their relative difficulty of production) or maybe they like the nice shininess of them. But for whatever reason, society values diamonds. It's not that diamonds are scarce, or that people individually and subjectively value diamonds. It's more along the lines of the fact that diamonds are valued more because of social factors. They are still bought and sold at high prices because of their relative cost of production, however.
Marginalists claim that "consumers would make a practice of seeking expensive wares without regard to their use." (1) But this is erroneous because 1) they are thinking within the faulty concept of Marginalism and 2) they do not take into consideration the social use of goods and services. As noted above, because diamonds have a use within society, they are sought out on the market, despite of their expensiveness.
I'm not sure this makes any sense, as I am typing this rather quickly in what little time I have available to me currently. My biggest fear is that this strays too closely to Marginalism. But what does everybody else think?
Footnotes
1: http://en.wikipedia.org/wiki/Marginal_util...er_and_diamonds (http://en.wikipedia.org/wiki/Marginal_utility#Criticism_of_the_marginalist_expl anation_of_the_paradox_of_water_and_diamonds)