Classic value paradox

The classic value paradox (also: water-diamond paradox ) describes the seemingly contradicting fact that there is often a difference between utility , utility value on the one hand and exchange value , value and price on the other hand of a certain good . Example: The vital and therefore “valuable” commodity water usually has a low price, while a diamond with a lesser elementary use has a very high price.

This distinction between value and utility is first found in John Law in Money and Trade Considered (Chapter 1, p. 1). Law explains it by the demand-supply ratio:

“Water has great benefits but little value, because the amount of water available is much larger than the demand for it. Although diamonds have little use, they have great value, as the demand for diamonds is much greater than the quantity available. "

In his main work, Law only describes value and utility as the basis before deriving the meaningfulness of paper money and its use. He also explains there that silver can have an additional use as a means of payment that it does not have as a pure metal. These definitions were initially not refined further by the classics; Law's reputation among economists of the 18th and 19th centuries was rather low due to his “fraudulent banking adventures”.

Adam Smith takes over the paradox and tries to explain it by splitting the concept of value into exchange value ( English value in exchange ) and use value ( English value in use ). The utility value of water is high, while the utility value of a diamond is relatively low. The exchange value of these goods is reversed. It was not possible for him to fundamentally resolve it. In the classical period, one managed to define diamonds as "rarity goods", but this did not adequately answer the question of the cause of the high price.

In the labor theory of value he used, Karl Marx attempted, among other things, to uncover the essentials in the contradiction between use and exchange value. While use value expresses the relationship between things and human needs, exchange value expresses the relationship between people. As Smith has already shown, there is no direct connection between the proportions of use-value and exchange-value. From a Marxist perspective, it was also objected that the water-diamond paradox is a special case: it is assumed that there is no market. The theory of value, however, only applies under the preconditions that there is market competition between industrially produced goods. This was already formulated by David Ricardo . In this respect, all goods that cannot be produced under these conditions, such as works of art, historical finds, etc., are also disregarded. In a crisis, the price of bread may rise to immeasurable heights in order to prevent starvation. The labor theory of value, however, only applies to commodity values or commodity prices that come about under normal market competition.

The Neoclassical theory is with its marginalist consideration a proposed solution for the value paradox. The value (expressed as price ) of a good results from its marginal utility (demand) and its marginal costs (supply).

literature

David Ricardo : On the Principles of Political Economy and Taxation. (1817) ISBN 0-486-43461-3 .

Paul A. Samuelson , William D. Nordhaus , Regina Berger: The value paradox. In: Economics: The international standard work of macro and microeconomics. MI Business Book , 2007. ISBN 3636031139 . P. 144.

Individual evidence

^ John Law : Money and trade considered. , Edinburgh 1705, p. 4th
↑ “It should be noted that the word value has two different meanings. It sometimes expresses the usefulness of a particular item and sometimes the ability to purchase other goods conferred by possession of that item. One can be called use value, the other exchange value. The objects that have the greatest use value often have little or no exchange value, while those that have the greatest exchange value often have little or no use value. Nothing is more useful than water, but you can hardly buy or trade anything with it. A diamond, on the other hand, has hardly any use value, but a large number of other goods are often available in exchange for it. "(Smith, A., An investigation on the origin and essence of the wealth of nations, Akademie-Verlag, Berlin 1963, p. 38f.)
↑ Ulrich van Suntum: The invisible hand. Jumper; 2005, 3rd edition, page 35/36
↑ “There are some things whose value depends only on their rarity. No work can increase their number, and therefore their value cannot be diminished by increased supply. Some exquisite statues and pictures, rare books and coins, wine of special quality that can only be made from grapes that thrive on special soil of limited area belong to this category. Their value is entirely independent of the amount of labor originally required to produce them, and it changes with the changes in the wealth and inclinations of those who wish to own it. However, these things only represent a very small part of the mass of goods that are exchanged on the market every day. The vast majority of the objects for which there is a need are obtained through work. They can be increased in almost unlimited quantities not only in one but in many countries if we are willing to put in the labor necessary to produce them. So when we talk about commodities, their exchange value and the principles that determine their relative prices, we always have in mind only those whose quantity can be increased by human labor and whose production is dominated by unrestricted competition. "Ricardo, D. , On the principles of political economy and taxation. Akademie Verlag, Berlin 1959, p. 10

[1] John Law : Money and trade considered. , Edinburgh 1705, p. 4th

[2] “It should be noted that the word value has two different meanings. It sometimes expresses the usefulness of a particular item and sometimes the ability to purchase other goods conferred by possession of that item. One can be called use value, the other exchange value. The objects that have the greatest use value often have little or no exchange value, while those that have the greatest exchange value often have little or no use value. Nothing is more useful than water, but you can hardly buy or trade anything with it. A diamond, on the other hand, has hardly any use value, but a large number of other goods are often available in exchange for it. "(Smith, A., An investigation on the origin and essence of the wealth of nations, Akademie-Verlag, Berlin 1963, p. 38f.)

[3] Ulrich van Suntum: The invisible hand. Jumper; 2005, 3rd edition, page 35/36

[4] “There are some things whose value depends only on their rarity. No work can increase their number, and therefore their value cannot be diminished by increased supply. Some exquisite statues and pictures, rare books and coins, wine of special quality that can only be made from grapes that thrive on special soil of limited area belong to this category. Their value is entirely independent of the amount of labor originally required to produce them, and it changes with the changes in the wealth and inclinations of those who wish to own it. However, these things only represent a very small part of the mass of goods that are exchanged on the market every day. The vast majority of the objects for which there is a need are obtained through work. They can be increased in almost unlimited quantities not only in one but in many countries if we are willing to put in the labor necessary to produce them. So when we talk about commodities, their exchange value and the principles that determine their relative prices, we always have in mind only those whose quantity can be increased by human labor and whose production is dominated by unrestricted competition. "Ricardo, D. , On the principles of political economy and taxation. Akademie Verlag, Berlin 1959, p. 10