The birth of modern academic economics is the fault of Adam Smith. He was a philosopher who blathered about a lot of things. To this day, much of economic theory comes from his writings, and it has always been marginally useful, but not worth making it into a full time occupation. One thing Adam Smith mentioned is a case in point as to how stupid economists tend to be.
The Diamond-Water Paradox (AKA Paradox of Value) is no such thing. It should be obvious why water is so cheap compared to diamonds. The answer is in the meaning of civilization itself.
In a state of barbarism, the only things with value are those humans need to survive. To thrive means having more than you really need. It means having enough to grow a substantial family and keep it growing. The whole point is to develop conditions where thriving is easier, so that an extra adult body doing work can produce more than their share of necessities and increases the comfort level.
It’s the question of economy of scale. Will more bodies increase the level of shared production for the family? Will it enable some use of time and resources to better organization and improved living conditions? Civilization means the rules and customs necessary to enable many people living in close proximity without killing each other, and taking advantage of having a concentrated labor pool to permit diversity of production to match human needs, and eventually human wants.
Something missing from the typical academic analysis of this question is that God’s revelation says humans are hard-wired to live in a feudal household with tribal social and economic structure. This is good, right and moral, and it’s how reality is designed to work. The only valid purpose for any human pursuit is to bless the family and to expand its size as much as possible. This is absent from Smith’s considerations.
So the feudal “lord” (head of household) knows that something like water is so very essential that everyone should have free or easy access to all they want. The first thing a lord would seek to arrange is an abundant supply with minimal labor. Such is his divine duty. It is utterly immoral to not try making water abundant for the your family; it’s an instinct burned into human nature. It’s the same instinct that compels that lord to seek sanitation measures the require as little labor and resources as possible, too.
Any valuation of diamonds requires a fairly advanced civilization that goes way beyond a small tribe in isolation. Diamonds become important for the same reason as any other form of money: it is a store of value facilitating easy exchange. The whole idea is to find something every trading partner will agree to accept in exchange for a lot more stuff that isn’t so easily carried. It is barter carried to its logical conclusion.
But if civilization dies, then barbarism returns to some degree, and diamonds become nothing more than pretty rocks. All the other brouhaha about precious gems and metals is just the fallen nature of humans getting in the way of clear moral vision. There’s no paradox. And none of this matters a whit without considering the sense of divine calling and religious considerations, because that’s also a matter of how humans are wired, but you won’t see that in your economics textbooks.
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Somewhere in a box, I have a book called “How the Scots Invented the Modern World” by Arthur Herman, an American who is not of Scots ancestry. The book firmly lays the “blame” on them. Adam Smith was a Scotsman. If you like non fiction it’s a good read.