Paradox of value

Both diamonds and water are scarce resources. A diamond is composed solely of carbon and its formation takes many billions of years. Exposed to intense heat and pressure hundreds of kilometers below sea level, the magical objects of desire are shaped by a powerful, natural process. Water is a daily necessity to each and every one of us. We need to drink water everyday, shower, washing and basically to survive.


Why are diamonds which have relatively little use to society; so costly, yet water which is fundamental to our way of life, so inexpensive?

Adam Smith (1723-1790) certainly believed that water is necessary for life (we will perish without it). By contrast, diamonds have little of such utility. They are only useful for adornment. It is possible to do without diamonds entirely yet diamonds cost so much more. Smith’s “paradox” as it has come to be known, highlights these two incongruous facts:

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