Talk:Paradox of value

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[edit] Looking at it the wrong way

I'm actually stunned by the level of effort put into this argument, because what we are discussing is a sociological/psychological problem and not an economic one. Water is cheaper than diamonds because humans want to wear rare, shiny things on their body as a status symbol. Everything that has been discussed here assumes that people are sane and rational. All of the economic theory in the world is useless when people have an irrational (and I must emphasize, IRRATIONAL) lust for beautiful stones.

Therefore, the answer is: Water is cheaper than diamonds because people are stupid.

Then why aren't quartz crystalks as expensive as diamonds, or glass paste forgeries? We can fake berauty, but we can't fake value.--Red Deathy 06:57, 12 September 2006 (UTC)
Ok, I'll trade you 10 gallons of water for a diamond. Please take advantage of my stupidity. Economizer 16:32, 12 September 2006 (UTC)
Psychology is certainly part of it. But the other part of it is scarcity. If there were an unlimited supply of diamonds, they would be free. A thing has a price because it satisfies two conditions: it is useful in satisfying a human want and it is not in unlimited supply (see subjective theory of value). Economizer 16:53, 12 September 2006 (UTC)


Red Deathy: Our culture considers diamonds a symbol of wealth, so people buy diamonds to show off their social status. People don't want to buy quartz crystals or glass or cubic zirconia because they know it's fake. If you wear cubic zirconia, people consider you to be shamming your status. Every culture on Earth reacts negatively to people who pretend to be of a higher status than they are. Even animals and insects have demonstrated negative reactions to people who sham their social status.

That's a circular argument, diamonds are valuable because they are a symbol of wealth? Why are they valuable in the first place. I agree semiotics is important, but what is so exceptionally beautiful about diamonds? --Red Deathy 07:52, 15 September 2006 (UTC)

[edit] Use value

this section needs to be rewritten, as the terms use-value and economic-value where terms coined and used by Karl Marx, are used only within marxist theory, and BIGTIME POV. Other terms should be used. Besides, because the article declares that water has "use value" and diamonds have "economic value", it has already decided what the correct explanation is, without giving weight to the theories explanied further down in the article. -- Dullfig 02:20, 17 February 2006 (UTC)

The fact that Karl Marx or Freddo Frog first used a term does not make it 'BIGTIME POV'.
who else uses the term "use value"? and why is it that the link takes you straight to Marx? What am I missing here? Not every solution to the diamond paradox resorts to the concept of "use value". The concept of use value would belong under the heading "labor theory of value", not the introduction of the article. -- Dullfig 02:52, 7 July 2006 (UTC)
Now your're shifting the goalposts. Your original point was that the mere use of the term was 'BIGTIME POV'.
The problem with avoiding the issue of use value (whatever term you chose) is that the paradox doesn't exist without it. Hence people who read the article are left wondering what the paradox actually is. (For the sake of clarity: the paradox is the discrepancy between something's usefulness and its monetary value.)--Jack Upland 05:37, 8 July 2006 (UTC)
No, I disagree: the paradox is not the disparity of value, but the failure of classical economics to account for that disparity. Paradoxes are never the facts themselves, but the inability to explain the facts by current understanding. For example, until we understood that all objects are accelerated at the same rate, people in the middle ages would have talked about the "paradox" that heavier objects don't fall faster than lighter ones. See what I mean?
The disparity in value is not a paradox at all when considered within the framework of modern economics. It was only a paradox to Smith and Ricardo. So here is how I think the article should be structured:
  • there has always existed apparent discrepancies between the values of differing objects.
  • Classical economic theory could not explain why this was.
  • This was deemed a paradox to classical economists.
  • Modern economic theory explains the discrepancy thus: (and here should go the different theories)
Dullfig 20:49, 8 July 2006 (UTC)

The problem with this analysis is that Smith went on to explain this paradox with the labor theory of value. He did not, as you imply, see this problem as insoluble.--Jack Upland 02:19, 9 July 2006 (UTC)

I'm sorry, I'm not buying it. His labor theory of value fails to explain why in a desert, water is more valuable than diamonds. Just because he could explain the paradox within a limited framework, and a controlled set of circumstances, doesn't mean that he solved the paradox. Now, we all know how much you like the LTV explanation, so let me throw this one at you: how come diamonds with massive flaws in them are dirt cheap, only useful as industrial abrasives, when the amount of work required to mine them is exactly the same? Why is it so hard to understand that the subjective wants and needs of the buyer plays a role in the price of things? -- Dullfig 21:46, 9 July 2006 (UTC)
  • The LTV is designed to explain general economic conditions, not (hypothetical) extreme isolated instances (the real "controlled set of circumstances" in this debate!). As I have pointed out ad nauseum, both Smith and Marx accepted that supply and demand caused fluctuations in the "natural price" (a.k.a. "exchange value"). Having said that the LTV can be applied to this desert scenario in its own limited terms. For the thirsty man, finding water clearly involves more labour than finding diamonds at that point in time.
  • On average, a miner will take more time to find a high-grade diamond than a low-grade diamond. In addition, the time taken preparing a jewel is much more than a industrial abrasive. On the other hand, cubic zirconia have as much aesthetic appeal to a layperson but will not command the same market price.
  • No one denies the wants and needs of the buyer "play a role". The problem is that your theory disappears the role of production. "Subjective" v.s "intrinsic" value is not the issue, as I point out below.--Jack Upland 00:37, 11 July 2006 (UTC)
PS Adam Smith (loc. cit.) uses the terms 'value in use' and 'value in exchange'. This is obviously what Marx took his cue from and totally demolishes Dullfig's contention which started this discussion.--Jack Upland 05:16, 6 August 2006 (UTC)

Given a year has passed on this exchange, I think we can discard the supposed issue raised.--Jack Upland 09:52, 23 July 2007 (UTC)

[edit] NPOV

The last paragraph of this article should be re-written or omitted, as it is not neutral. It advances a certain socio-economic view that is not held to be common truth (i.e. that that which is necessary for life is therefore a right which should be provided by the government - the same argument could be made for government-sponsored health care, which is a hotly contested issue). In addition, the final sentence suggests that revolution is inevitable in the face of the violation of the previously stated view, which is a personal conjecture on the part of the author. At the very least, any such "alternative" viewpoint should be cited, as otherwise it is original research and/or analysis on the part of the author. ZantTrang

  • I disagree. I think that the paragraph suggests that every man has the right to life, which is in fact a very widespread opinion. Furthermore, the paragraph is putting forth an argument, not a truth. It is true that the character of the writing makes it seem biased, but in terms of the actual wording no particular view is espoused as predominant; if anything, the article seems to lean towards the notion of subjective value. Mipchunk 08:03, 16 January 2006 (UTC)
    • Certainly this article is a description of a series of arguments; however, note that the rest of the article is based on solutions that are cited at the bottom of the page, and are not phrased so as to imply certain disputed rights. As I said, this last paragraph implies original analysis by the author, rather than a compilation of widespread resolutions to the Paradox of value. The rather weak phrase "it could be argued" sounds like a weasel phrase meant to mask the fact that the paragraph is the personal conjecture of the author. ZantTrang
      • Fine, I'll agree that the argument has no source. But original analysis - who knows? Perhaps the author is an economics student or something and actually knows what he's talking about. Maybe the author will come by and add to this discussion! Mipchunk 08:10, 16 January 2006 (UTC)
        • The problem with that argument is that Wikipedia is not a source for the publication of original research, which is what your argument would entail. It can only document things which have already been published. I'm going to remove that paragraph until somebody else comes along to arbitrate this. --ZantTrang 08:12, 16 January 2006 (UTC)

Um... how can this even be called a paradox. If water was as rare as diamonds, the value of water would exceed the value of diamonds quite noticably. It seems really simple I'd say. I mean, people would kill for it and probably do worse things. But as of today (in most parts of the world) you can take a quick look outside and voila. Water. As said in the article: Scarcity. -- Some dude.

Yes, but at the time many people though value was derived from it's use (use value) or its cost of production. If you don't know about economic value it is a paradox. BrokenSegue 03:31, 17 February 2006 (UTC)
Rather, a false dilemma.
This dilemma only exists if a certain simplistic and incorrect theory is accepted. This should be specified in the first sentence. Outside of that theory, there is no paradox at all. In other words, this is simply a trap that some economists have fallen into with an inadequate theory that they have devised. To an average person operating with common sense, there is no paradox here at all.Balcer 20:18, 24 April 2006 (UTC)

The explanation of scarcity doesn't really work. My artworks are scarce but none of you philistines buy them. On the other hand, diamonds are not scarce if you suppose that cubic zirconiums are diamonds. Why aren't they? They share the same aesthetic qualities. The question is: what is it about scarcity that makes things expensive? The labour theory of value replies: the work needed to obtain them. This then is an explanation.--Jack Upland 11:52, 19 June 2006 (UTC)

[edit] Diagram

Bloody good read. Interesting, topical and not too long-winded. It could do with a graph or diagram if such a thing should exist - and I think it should.

Alright, I made this graph to illustrate the marginalism section. Any comments? I think it probably needs some changes. Leonardo 20:50, 27 April 2006 (UTC)
The graph does not allow for the concept of garbage - something is available in such a large quantity that it has negative value (you are willing to pay to get rid of it). - Vlad —Preceding unsigned comment added by 86.121.4.114 (talk) 15:06, 1 March 2008 (UTC)

[edit] Riddled with errors

  • 'diamonds have mostly aesthetic value' - false. What about industrial uses?
    Later in the article, it says "Ignoring industrial uses of diamonds". Remember that the use of diamonds for industrial purposes didn't exist when the paradox was proposed. Leonardo 21:31, 19 June 2006 (UTC)
According to Wikipedia, this use has been known since earlist times.--Jack Upland 11:34, 20 June 2006 (UTC)
Now you are splitting hairs. Surely if it is mentioned the article can safely ignore industrial uses of diamonds. Also, in reality, there are no diamonds which could serve either industrial or decorative purposes. Diamonds of a certain quality become industrial and the better ones become jewels. They are two different commodities. Leonardo 14:41, 20 June 2006 (UTC)
Text fixed.--Jack Upland 09:16, 21 June 2006 (UTC)
  • 'There is no classical solution to the paradox' - biased. This article does not accept the classical solution (LTV).
    Find me a source where it says there is one and let's fix it. Leonardo 21:31, 19 June 2006 (UTC)
The Labor Theory of Value is proposed as a solution, as you know.--Jack Upland 11:34, 20 June 2006 (UTC)
Find me a reasonable source that says there is a valid classical solution. An invalid solution is not a solution at all. Leonardo 14:41, 20 June 2006 (UTC)
Biased conclusion.--Jack Upland 09:16, 21 June 2006 (UTC)
  • 'This hypothesis breaks down when one considers that in the desert scenario, the production cost of the water is still much lower than the production cost of a diamond, yet the water is valued more highly than the diamond' - confused. The social production cost of water is unchanged, and so is the social 'value' (i.e. price). It is the individual value which is higher, but then so is the individual production cost - or else the individual would not be dying of thirst.
    The individual production cost is irrelevant. My production cost of diamonds (I don't know how to mine) is independent of the price I will pay. Leonardo
No, it's not. If you could find water more cheaply, why would you pay in diamonds??--Jack Upland 11:34, 20 June 2006 (UTC)
  • Amish example - illogical. If there is no demand for diamonds, then no diamonds would be produced, and hence no labour expended.
    In the amish example, the production cost has not changed. Whether or not less is produced, the cost of digging them up is the same. The fact that the price people will pay declines when the cost of production is constant is the contradiction that destroys inherent value. Leonardo 21:31, 19 June 2006 (UTC)
False. The Amish example proposes there is no demand for diamonds.--Jack Upland 11:34, 20 June 2006 (UTC)
Whether or not everyone has an aversion to diamonds doesn't change the production cost or labor required to make them. Leonardo 14:41, 20 June 2006 (UTC)
If there is no production, there's no production cost. It's an illogical argument.--Jack Upland 09:16, 21 June 2006 (UTC)
  • 'By itself, this solves the paradox of value, without directly explaining the value of any good' - blatant non sequitur.
    • No, it says that nothing more is needed for the paradox to be solved (other solutions may require further argumentation or assumptions). Perhaps clumsy writing, but not a blatant error. Leonardo 21:31, 19 June 2006 (UTC)
Hair-splitting.--Jack Upland 11:34, 20 June 2006 (UTC)
Let's agree to disagree. Leonardo 14:41, 20 June 2006 (UTC)
I disagree.--Jack Upland 09:16, 21 June 2006 (UTC)
  • 'So the value of one bag of grain is equal to the satisfaction he gets from feeding the pigeons' - nonsensical.
    • I disagree. It's an example which improves the style of the article and makes the point more clear. Makes sense. Leonardo 21:31, 19 June 2006 (UTC)
Rubbish. You cannot place a monetary value on feeding pigeons. If you can, what is it?--Jack Upland 11:34, 20 June 2006 (UTC)
You can't place a value on activities? People are willing to pay based upon how much marginal utility they recieve from feeding them. Anyways, why must there be a monetary value? It could just have a value in utils (i.e. value to him). The article doesn't even say that he bought the sacks of grain. No money is involved. Finally, this isn't our example it was made by Eugen von Böhm-Bawerk so its useful at least in an historical context and thus should stay. Leonardo 14:41, 20 June 2006 (UTC)
The paradox of value obviously relates to monetary value and cannot be stated if money (or an equivalent concept - 'exchange value') is ignored.--Jack Upland 09:16, 21 June 2006 (UTC)
  • 'It should be stressed that this is still a subjective theory of value: diamonds are valued highly because the marginal utility of a diamond as an ornament is very high, but that is so only because people consider ornamentation important' - contradictory. Despite what has gone before, this means the theory of marginal utility is relatively unimportant. It is only an expression of the forces of supply and demand which both Adam Smith and Karl Marx recognised. The important issue is the subjectivity. But on analysis this only means this: 'people pay high prices for what they consider valuable', or more accurately 'people pay high prices when they pay high prices'. This then becomes not contradictory but rather a childish tautology.
    The important realization of the solution is that it is the marginal utility (not total utility) of a good that determines demand. Smith and Marx did not notice this (as far as I know). Leonardo 21:31, 19 June 2006 (UTC)
No. The concept of utility as a determination of price is rejected by Marx (not sure about Smith). The concept of 'marginality' is essentially a recognition of supply and demand, which was recognised by both. This, however, only explains the fluctuations in price not its normal level, as was pointed out by both.--Jack Upland 11:34, 20 June 2006 (UTC)
  • Furthermore the article is generally full of the attitude that marginalism is right and anyone else just doesn't understand. Hence it goes against the 'POV' guidelines.--Jack Upland 12:14, 19 June 2006 (UTC)
    I'd say the marginal utility explanation is the most widely accepted and this article reflects that fact. Please prove me wrong. I checked around for other reference texts on the subject (books I have, encyclopedia, etc.) but nowhere have I found a authoritative reference. I'd love to improve this article. Leonardo 21:31, 19 June 2006 (UTC) (sorry for confusing you before, long story)
The fact that marginal utility is 'most widely accepted' is not contested. But Wikipedia's policy on 'POV' precludes even the condemnation of crimes against humanity (!). More importantly (in my opinion) a good theory can stand on its own two feet without denigration of critics. I think that this article is an inane and biased repetition of material already carried on the marginal utility and labor theory of value articles.--Jack Upland 11:34, 20 June 2006 (UTC)(no worries)
Yes, but in the holocaust article only a small portion is dedicated to holocaust denial and no doubt about the it are expressed in the lead. Clearly there is a gray area. Leonardo 14:41, 20 June 2006 (UTC)
I don't think you can put a supporter of the LTV on the same level as a Holocaust denier! Moreover, the whole article is premised on the existence of controversy and paradox'. It is biased to present this without a fair presentation of contrary views. If the classical economists were wrong, then this needs to be explained, not assumed.--Jack Upland 09:16, 21 June 2006 (UTC)

[edit] Subjective v.s Intrinsic

This article is constructed around the opposition of "subjective" v.s "intrinsic" theories of value. This is a false presentation of the issue and biases the discussion towards marginalism.

  • As I have pointed out on the LTV page, Marx (the usual scapegoat) denied "exchange value" was intrinsic to goods. (Incidentally, since the LTV is the only "intrinsic theory" mentioned, why use the category?)
  • This falsely suggests that the LTV denies the role of demand. Again, refer to the LTV page.
  • The real division is not between "intrinsic" and "subjective" views of value, but between explaining economic value (as expressed in price) by production factors (such as labor) or by utility (use-value, usefulness). Smith's paradox draws out the difference between price and utility and instead proposes the LTV to explain price. Marginalism response is to defend the proposition that price relies on utility by cloaking the latter with the nebulous concept of "marginality". Hence water's utility might be more than diamonds but its "marginal utility" is less.--Jack Upland 00:56, 11 July 2006 (UTC)


Here is how I see it: price is determined by labor, value is determined by the subjective asessment of the buyer. They BOTH play a role. A buyer will only buy something, if in his mind, and for his given set of circumstances, the value of the object is percieved to be higher than its price. When the value is percieved to be less than the price, one of the following happens:
  • The "I can make it myself cheaper" scenario: if someone was charging you $10,000.00 for a flowerpot, you could think to yourself "for that amount of money, I can buy a whole kiln and make a flowerpot myself".
  • The "I don't need it right now" scenario: you might decide that you don't need a flowerpot this very moment, and can wait until the prices come done, if they in fact do.
  • The "I wouldn't buy that for any amount" scenario: you may decide you don't want a flowerpot even if they where giving them away.
This means that the buyer has to always percieve the value to be higher than the price..
Prices tend to move towards the labor involved, plus a reasonable profit. Suppose you where the first to invent a flowerpot, and it took you $2.00 to make, and people liked it so much they where willing to pay $1000.00 for it. Immediately the word would get around that hughe profits where to be had making flowerpots. So many people would start manufacturing them, that pretty soon the market would be satturated, an the price would HAVE to come down to a reasonable profit above $2.00.
But value can only be figured out on a person by person basis, taking into conisderation the wants and needs of each person. It doesn't matter that millions of people want to buy flowerpots. The flowerpot has to be valuable to each separate individual by himself. The fact that millions buy flowerpots, just means a lot of people like plants. But the fact that millions buy flowerpots will mean nothing to someone who dislikes plants. He will say "I don't care how many people think that flowerpots are valuable, I don't like plants, therefore pots are worthless to me". So you see, value bears NO relationship to the labor involved in making something, it only determines if someone will ultimately buy something, and can only be deterimined on an individual basis.
Bottom line: intrinsic and subjective go hand in hand. They co-exist. There is no such thing as intrinsic vs. subjective. There is intrinsic plus subjective, and that is the whole point of the objectivist theory of value. -- Dullfig 19:17, 15 July 2006 (UTC)

Value here = 'utility'. And, yes, utility is determined by the individual concerned and the circumstances. But LTV never attempted to explain this, only the phenomenon of price. Bottom line: the above actually supports the LTV.--Jack Upland 09:27, 16 July 2006 (UTC)

Ok, I think we're wandering off topic, but let me make a final comment, and I think this is where socialism and communism (and any other central planning economic model) fall on its face. A communist says "it takes a worker 8 hours to make a hammer, he gets $10.00 an hour, therefore the hammer's price should be at least $80.00". That is it, end of discussion. You want a hammer, cough up $80.00. But in a free society, the buyer says "no way, I'm not paying more than $20.00 for a hammer, that is all it is worth to me". At that point the manufacturer, who is the owner and therefor can make immediate decisions, is in a position of deciding if
  1. Can I make the hammer in less time, and therefore bring the price down to the percived value? or
  2. If I cannot make a hammer in under 2 hours, should I go into business doing something else? at wich point valuable resources are not wasted making something that no-one wants (at that price).
The LTV doesn't give you the tools to make these decisions. It can tell you what the price for a product should be based on the time taken to make it, but it doesn't tell you if the time taken to make it is what it shoul be. Only the free market can tell you that. -- Dullfig 17:01, 17 July 2006 (UTC)

One thing I don't understand is how you and your co-thinkers can put up seemingly rational arguments and then revert to gross misrepresentation as above. Firstly, the LTV has never been restricted to socialists. Secondly, the LTV is designed to explain capitalism and doesn't apply to hypothetical centrally planned societies (at least in Marx's opinion). Thirdly, how does the 'free market' 'tell you' what the price or labour time 'should be'? The market is nothing if not a practical social reality. And all this reality is is that things are sold at a certain price or not sold at all. The LTV seeks to explain what the equilibrium level of this price is.

The position put by market economists implies that a thing is sold before it is made. (This is rarely true.) This underlines my point that the debate here is really production v.s utility (or consumption?) not subjective v.s intrinsic value. Therefore I think the article should be changed.--Jack Upland 09:41, 18 July 2006 (UTC)

Actually, quite the opposite. If you wanted to start a new company that makes hammers, the first thing you would find out is the price you would likely be able to sell them for. Then based on that, you would decide if it is feasible to make the hammer at a cost less than the price, so you would make a profit. If not, you would invest your money in something else.
Bear with me, this takes a bit of explaining :)
The fallacy of the LTV is this: it starts by making the observation that the price of things tends to be equal to the labor involved when supply and demand are in equilibrium. Then it declares that the price of things should always equal the labor involved, regardless of the supply or demand. That is why communist countries always experience shortages. There is no incentive to make more of something to meet demand.
Suppose you had just invented the hammer. Suppose you decide you want to sell them for $10,000.00 apiece. I'm sure you could find 10 people in the world per year that thought a hammer was worth that much. So you could make 10 hammers a year, and make a comfortable living. So you say "where is the incentive to make more"? good question: you may not have an incentive, but as soon as word gets out that making 10 hammers a year gets you lots of money, more people will want to make hammers. Now you have competition, you will have to make your hammers cheaper. You will have to figure out how to make the hammer faster, so you can still make money.
At some point, an equilibrium will be reached, where hammers cannot be made any faster, the price of a hammer will reflect the cost involved, and enough people will be making hammers so that anyone that wants one can get one. At that point, LTV will hold true. This entire process happened because the price was allowed to be exhorbitant initially. The problem is that communists want LTV to hold true ALL THE TIME, regardless of supply and demand, regardless of whether a product is new, or has become a commodity. And it doesn't work!
Consider the "worker's paradise" scenario: It has been decided that a salary of $20.00 per hour is fair compensation. You have been assigned the job of designing something to drive nails. You invent the hammer. You try to make one, and the first one takes you 10 hours to make. Therefore, you sell the hammer for $200.00. With a 40 hour work week, you can make 4 hammers a week, which at $200 sell quite easily. But at $200, more than 4 people a week want hammers. Can they get one? Why should you make more than 4? you are going to earn $20 an hour regardless of how many you make. You might even decide to take longer, and make 2 a week, since you will get paid anyways. No one else will want to make hammers, as they are already earn $20 an hour doing something else. If the people demand hammers loud enough, maybe the army will point a bayonet at you and demand you work faster. Some paradise.
When equilibrium is reached, three things must hold true:
  1. enough people are involved in making hammers to meet demand,
  2. hammers are being manufactured as fast as possible, with no wasted resources,
  3. everyone that wants a hammer can get one at a price they consider reasonable.
LTV cannot predict this equilibrium point. The only thing that can determine price is supply and demand. When supply and demand are in equilibrium, the price of things will tend to be equal to the labor involved, but this does not mean that LTV can predict the price of things. Dullfig 17:52, 18 July 2006 (UTC)

Once again, you're assuming that the LTV doesn't understand supply and demand (false).

"When supply and demand are in equilibrium, the price of things will tend to be equal to the labor involved, but this does not mean that LTV can predict the price of things."

This is a non sequitur. First, you accept the LTV in its entirety. Case closed, I would have thought. Second, you then deny you have done this.

No, I do NOT accept it in its entirety. re-read my points. LTV may hold true during equilibrium, but fails to explain the $10,000.00 hammer. Someone who is an LTV True Believer would say that such a hammer is proof of price gouging and exploitation of the workers.
"The problem is that communists want LTV to hold true ALL THE TIME, regardless of supply and demand, regardless of whether a product is new, or has become a commodity."

This argument is false, as I have repeated ad nauseum:

  • Firstly, the LTV is a theory of capitalism and not a method of planning a "workers' paradise". Nor was it developed by communists. Marx in his Critique of the Gotha Program denied both the universal applicability of the LTV and its applicability to communist society.
  • Secondly, the LTV doesn't state that prices are (or should be)fixed, rather that they fluctuate around an equilibrium point (Adam Smith's natural price, Marx's exchange value).
  • Thirdly, (though rather irrelevantly) your analysis of command economies is false. Generally speaking, in these economies, producers are not free agents, do not receive direct sales revenue, do not have a profit motive, and do not respond to market conditions in the way you outline. Your analysis is quite correct when applied to price-fixing in market economies (such as rent controls in New York) but is not applicable when private property and private enterprise are altogether absent. Fixed (and subsidised) prices in command economies don't affect production but do affect consumption. Consumers are free agents and will take advantage of fixed prices. Hence the phenomenon of empty shelves, queues, and black markets. It's analogous to ticket sales for events in market economies.
you mis-characterize my understanding of "command economies" (AKA "hell on earth"). I fully understand that workers are not free agents, and if you re-read my point it would become obvious. Dullfig

I don't understand why the same false representations are put forward.--Jack Upland 23:22, 22 July 2006 (UTC)

  • We aren't here to argue about which theory is true, we are here to write an encyclopedia article. Having said that, I've read over your debate and I generally agree with Dullfig (sorry I haven't been around much to contribute, I've been busy). I encourage Jack to show us a reference to back up his rhetoric. Remember Wikipedia needs to reflect the standard body of literature, not necessarily the truth (we rely upon the accuracy of the general body of knowledge), so only referenced statements are meaningful. In the last few minutes I looked at several books which dismantled LTV. One of them flat out said that LTV was not accepted by today's economists and that it was only of "antiquarian interest today". That is pretty damning. The burden of proof is on your shoulder Jack and a syllogism isn't good enough (see WP:NOR). Until then, the article should not be restructured. Leonardo 15:21, 23 July 2006 (UTC)

Numerous references can be found on the LTV page as indicated above. Your point is contradictory though: firstly, you say where not here to argue; secondly, you condemn the LTV as outdated. So I shouldn't express my POV but you should.--Jack Upland 03:09, 24 July 2006 (UTC)

We aren't here to argue about the issue. We are here to decide what the consensus of economists is. I referenced a book that reflects that general agreement. I was not expressing my POV (although my POV is evident). You said yourself that "The fact that marginal utility is 'most widely accepted' is not contested." Thus we should make it clear that marginal utility is the accepted explanation (thus, a bias towards it is reasonable and appropriate). Other theories are already presented, but it is made clear that they are not given much weight. Leonardo 03:59, 24 July 2006 (UTC)

So what's the point of this article? It discusses a 'paradox' which as was pointed out above by others isn't a paradox in the 'consensus' opinion? What's the point of the 'NPOV' guidelines if they can be swept aside by the 'consensus'? Particularly if 'consensus' is explicitly used to justify misrepresentation????--Jack Upland 10:40, 28 July 2006 (UTC)

[edit] Labor Theory of Value

Even if the LTV is wrong, that's no reason to misrepresent it as with recent edits:

Adam Smith's LTV held that the value of a good is determined by how much labor for which it exchanges for in the market.

This reduces the LTV to a simple tautology: essentially determining the price of a good by its price on the market, as many critics have helpfully pointed out. In fact it is the labor input that is supposed to determine value - as the original text said! (In fact was the difference between wages and the price of goods that Marx used to support his theory of exploitation.)

Your attempts to portray this 'paradox' as a major problem for the LTV to which only marginalism has a solution are simply silly, not matter how many 'authorities' you cite. Smith's point is to propose the LTV as a solution to a problem with the subjective view of value. The paradox is not and was never proposed as a problem with the LTV. --Jack Upland 10:43, 31 July 2006 (UTC)

I've restored LTV section (again) it needs to be included if only because it was proposed as a solution (and indeed, the paradox was a large part of the reason why it was propounded - the article is kinda senseless without it). Reword if need be, but keep the section. Removing is grossly POV. For now I've added an initial qualifier. For the record, I agree with jack that SMith saw LTV as a resolution of the paradox, at least that's how I always read that section of Wealth of Nations - and just because it attacks the premises rather than addressing the conclusions doesn't mean it isn't a solution - in essence it says the problem doesn't exist because use and exchange value do not influence one anotehr (it says).--Red Deathy 07:53, 9 August 2006 (UTC)

[edit] Adam Smith on the Paradox

In his editing, Economizer made the following comment:

...this is ridiculous. Adam Smith did not claim to explain the paradox. He couldnt figure it out! You will try in vain to find a source for this.

I suggest that Economizer reads the passage to which this article purports to refer. Smith clearly doesn't see the paradox as a puzzle, but analyses it in terms of the use/exchange value distinction (see quotation cited). I find the call for a source bizarre. The source is Smith. This is what he said. We cannot discuss what Adam Smith said without citing the original, and it is superfluous, silly, and potentially dishonest to cite a secondary source in preference to the primary source that it purports to represent. And no, this is not original research. It is merely building on the quotation from Smith which is at the nub of this article (allegedly).--Jack Upland 05:24, 6 August 2006 (UTC)

It is original research. You're interpreting the primary texts. Quoting the primary texts is fine, but it starts being original research when the intepretation comes in. For instance, it says "Adam Smith explained the paradox by arguing that value had two different meanings." Says who? How do we know that he is saying this in order to explain the paradox? You need to find a source saying that he's explaing it there. I know that he's not. That is a statement OF the paradox, which is that that that the greatest use value often have little exhcange value. Or is that what it means by saying he's "explaining" it? It is not clear. Also, it says "He explained the value in use as being determined by labor." Then quotes this as an example: "The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it." That is not what he's explaining there. He simply defining "real price". Real price is the labor cost. Smith did not solve the paradox. He didn't have the concept of marginal utility. If he did, then he wouldn't find it strange that some things that are more useful have a lower price. He would have realized that each unit of water is actually less useful the more one has. Economizer 06:57, 6 August 2006 (UTC)

Smith was actually puzzled by his own statement [of the paradox of value] and hampered by a failure to use the calculus, he and the classical school were unable to grasp that the correct solution required a distinction between the marginal and total valuation of a commodity. Without this solution, Smith effectively set aside any discussion of value in use and and hurried on to explain only the determination of exchange value.

From "Themes in Post-Keynesian and Political Economy: Essays in Honour of Geoff Harcourt"
Seems he didn't think he had solved it. The distinction just allowed him skip the hard part. Jack, your reference only describes that Smith thought there are two kinds of value, not that the value-duality is a solution to the paradox. Leonardo 14:16, 6 August 2006 (UTC)

Give me a quote from Smith saying he didn't think he solved it! Once you accept there are 2 different kinds of value, the 'paradox' evaporates. If you read the text, he states that value has 2 meanings and then illustrates this with the 'paradox'. In other words, value in use need not be related to value in exchange. How then do we account for value in exchange? We account for it - according to Smith - by the LTV. All your secondary sources assume marginalism is correct - which is not allowed on Wikipedia - and then misrepresent Smith. My statements about Smith are not my interpretation but merely references to the original text. The point is that the diamond-water example is a paradox for the utility theory of value (a.k.a. subjective), which marginalism solves for it and it only, but since the LTV rejects the notion that utility - and indeed consumption - fundamentally determines exchange value (and hence price) but rather argues that production (specifically labour) determines exchange value, this is not and has never been a paradox for the LTV. Hence the confusion.--Jack Upland 07:18, 7 August 2006 (UTC)

So basically you are arguing that my source is wrong and the author is too biased to see the truth. Since when is do Wikipedia's rules not allow the use of secondary sources that agree with standard wisdom. The majority of economist assume marginalism is correct, why is my source being discounted for doing so? Anyways, fine, find your own source. Primary sources are fine (i.e. Smith), but you must find a very explicit quote that leaves no doubt that what you are saying was Smith's intention. The quote I found is quite specific and seems to directly contradict what you are saying. Just to clarify, the point of contention is that Smith did not solve the paradox. I just reread Smith's chapter called "Of the Real and Nominal Price of Commodities, or of their Price in Labour, and their Price in Money." The chapter makes it clear to me that he believed the exchange value was determined only by labor, not use value. It is value in use that we are concerned with here. Oh, by the way, here is another source that agrees with me. It's written by Murray Rothbard. Interestingly, he writes that Smith discussed the actual solution in lectures sometime before writing TWON, but changed his tune while writing.

In his lectures, furthermore, Smith had solved the value paradox neatly, in much the same way as had Hutcheson and other economists for centuries. Why is water so useful and yet so cheap, while a frippery like diamonds is so expensive? The difference, said Smith in his lectures, was their relative scarcity...But in the Wealth of Nations, for some bizarre reason, all this drops out and falls away. Suddenly, only ten or a dozen years after the lectures, Smith finds himself unable to solve the value paradox.

So, I have two clear sources and you have one unclear one. Leonardo 15:05, 7 August 2006 (UTC)
  • You say: 'The chapter makes it clear to me that he [Smith] believed the exchange value was determined only by labor, not use value.' Correct. The LTV maintains that use value does not determine exchange value; on the other hand, marginalism explains exchange value by use value. Hence you agree with me on this point: the paradox is not a paradox for the LTV as the paradox concerns use value and LTV says nothing on use value. Think about it.
  • Secondly, I repeat my challenge: cite where Smith says he was puzzled by the paradox and couldn't solve it.
  • Finally, deleting the section on LTV is extreme and absurd censorship. I'm reverting it.

--Jack Upland 03:45, 9 August 2006 (UTC)

  • (Issues addressed in reverse order) I am fine with "It is generally maintained that Smith was unable to come up with a solution to the paradox in Wealth of Nations.[4]" It's true. I can't cite where Smith said he was confused because he jumps about and dodges the issue. I was saying that Smith dodged the issue of the source of value by splitting use and exchange value and ignoring the source of use value. Thus he failed to adequately explain the source of value and the paradox stands. His theory is incomplete and by all standards flawed. Now that we have agreed on that first sentence though the issue is just one of semantics and POV. I am perfectly happy the way the article is right now. Let's move on. On the bright side, we have a better referenced article now. Leonardo 04:23, 9 August 2006 (UTC) Let me clarify. I think Smith tried to solve the paradox and thus I think his attempted solution (obviously it's wrong, but it was still his attempt) should be presented. His errors are important because they confused the next generation of economists. As long as the article makes it clear that nearly everyone thinks he's wrong then I am happy. Leonardo 04:52, 9 August 2006 (UTC)

I happy you're happy. (I'm also happy you admit you can't cite where Smith says he was confused! I think this makes the secondary sources rather dishonest when they say he was puzzled by it - but we'll let that rest, shall we..?)--Jack Upland 05:18, 9 August 2006 (UTC)

[edit] Adam Smith on the Paradox (Redux)

Please stop putting in the article that the labor theory of value resolved the paradox. No one thinks that the labor theory of value explains why a thing that has high value in use can have low value in exchange. The labor theory of value was never proposed as a solution to the paradox. Economizer 05:27, 11 August 2006 (UTC)

Economizer, I'm bemused, LTV does explain it (or at least I should it proponents claimed it resolved it) by stating that economic value is not a function of utility, therein dies teh paradox. Once you've explained that the two things are not causally related (if true) then the apparent weirdness of useless things being really expensive disapears. After all, Smith introduced his version of LTV by reference to the water/diamonds paradox - that's suggests strongly to me that he believed it was an answer. At least, that's how I read the passage when I first came across it many moons ago.--Red Deathy 07:26, 11 August 2006 (UTC)
Smith was the first economist to try and explain capitalism in a scientific way. But does that mean that every single theory he proposed was right? even if he said himself it was right? History is full of theories that the author insisted where right, and then where proven wrong. Physicists used to believe in the ether, in phlogiston (flames where produced by a weightless gas called phlogiston, which was contained in more or less quantity in matter), etc. These people where not stupid. There theories could explain most fenomena, but failed to explain special cases. It is because of the exceptions that new theories are born. LTV may be able to explain to a first aproximation the value of things, but it does not explain the diamond-water paradox (live with it). Marx decided that the reason exchange value was different from use value, was because factory owners cheated their workers. Communists still believe to this day in the exploitation of workers by owners, so it is no surprise that they believe in the LTV. This does not make the LTV true! there is a fair number of people that believe to this day that we never whent to the moon, that it was a hoax cooked up in hollywood. Does that mean they are right? Rule of thumb:
  • Theories are not decided democratically. It does not matter how many people think something is true. What matters is if the theory itself is true, in other words, can it explain each and every situation.
Dullfig 19:07, 11 August 2006 (UTC)
You may believe that Smith thought he resolves the paradox, but did Smith really believe that? Your opinions are not good enough. If this is true, then why can no one come up with any cite that Adam Smith resolved the paradox of value? I've never read anywhere that Adam Smith resolved the paradox or even that he thought he resolved it. Economizer 04:38, 12 August 2006 (UTC)

Unfortunately, I can only repeat: cite the passage where Smith said the paradox remained unresolved. (And by the way, Dullfig, Marx's theory of exploitation is not based on the difference between use and exchange value.)--Jack Upland 07:22, 12 August 2006 (UTC)

Oh really? Anyway you slice it, Marx said that owners where getting money they did not work for. Either they pay the workers full price for their work, and are ripping off the consumer, or they are charging the consumer fair price for the items, and are ripping off the workers. Those are the only two possibilities that Marx allowed for. Prove me wrong. Dullfig 22:51, 12 August 2006 (UTC)
Marx said the capitalists paid the workers the full value of their labour power - the correct market price. They then charged their consumers for the full value of labour performed, the correct market price. no one was being ripped off, it was sytstemic exploitation inherent in the purchase of waged labour (sorry, this is a necessary correction). As to Water/Diamonds it doesn't matter if a theory is now seen as correct or not, it was put forward as an answer and was held to resolve the paradox. As for Smith, I re-assert, the passage in Wealth of Nations that discusses water/dimaonds, precedes his introduction of LTV, so he at least, we can say with some confiddence, considered that the two had some connexion. Can we agree that far?--Red Deathy 07:46, 14 August 2006 (UTC)
Ok, whenever you purchase something, the percieved value of the item MUST be more than the asking price, or you would not consider it wise to spend your money. Under capitalism, where labor power is a commodity (and by right it ought to be, since no one is the owner of your body but yourself), the business owner by definition feels they are getting more value for their money, in other words, the labor power obtained from the worker is more valuable than the paycheck you are giving them. therein lies the supposed systemic exploitation.
What Marx seemed to not realize, is that in any transaction both parties get more value out of the transaction! This is possible because the circumstances of each person are different. To the employee, the labor power he is giving must, by definition, seem less than the money they are getting in return as a paycheck, or they would not be working for that employer. So who is exploiting whom?
As far as the paradox itself is concerned, it is a situation similar to Newtonian physics. Newton's theories are correct within a narrow framwork of reference. Newton's theories fail at speeds close to that of light. Because of this, Einstein formulated his theory of relativity. Does that mean Newton was wrong? Technically, yes, he was wrong. But for everyday calculations, the figures you get from Newton are so close to those obtained from Einstein, that the added complexity of relativity is not justified, and we still use Newton's formulas to this day. But we have a clear understanding of when Newton fails.
Same with LTV. within a narrow framework, LTV can be made to explain the Diamond-water paradox. But if LTV was the definitive answer, there would not have been a need for any other theories. The fact that LTV fails to account for all cases of value, shows that LTV is not the true answer. Never mind tha Smith thought it was. That is a silly asertion. Of COURSE he thought it was the answer, or he would not have put forth the theory! What matters is: do we still think LTV is the answer to the paradox? the answer is no, because there are better theories explaining it. Dullfig 17:49, 14 August 2006 (UTC)
Discussion pages aren't for debate, but since this is relevent - your first premise is flawed, I could and would part with money of equal value for an object, because I need to have it. tehre is no must entailed. At teh least, I could be choosing randomly between equal options. If use and exchange value are separate, this is more possible. you're assuming what you want to prove. My use value for that object would be greater than equivilent uses for the same exchange value, but I would exchange at value. The labour power is bought at value - consider it this way - when you buy a hammer you are not charged for the value of the goods you are oging to produce with it. the same happens with labour power, it is bought at its precise and totally correct fair above board market price, absolutely. The labour power is then used to make labour, the fruits of the labour are then sold - this labour is not paid for. In otehr words, we do not sell our produce, the value of the work we do to our employer, only our capacity to do that work.
Anyway, this is wikipedia, no one here is arguing LTV is the definitive answer, only that it has been put forard as an answer and deserves a reasonable hearing on a page that is intimately connected with it. The case for LTV as a resolution should be fairly put, and any criticisms failures can be - WP:V - pointed out.I'm not here to defend a theory, although I could, I am here to produce a good encyclopedia page on a subject in which I am interested - what about you?--Red Deathy 18:00, 14 August 2006 (UTC)
I am all for writing a balanced encyclopedia. The problem is that when you try to say things like "LTV has been superceeded", people with an agenda come out of the woodwork screaming that you are violating NPOV. THat is ridiculous. No one would scream NPOV if you said Newton was superceeded by Einstein. The problem is, there is a whole political movement built uppon LTV, and therefore LTV must be preserved at all costs. This is mostly why I keep debating the issue, because it is high time the other side recognized there might be two sides to the coin, and stop editing the pages to their liking. Dullfig 18:22, 14 August 2006 (UTC)
PS.: you just contradicted yourself: if you would rather have the money than the item, then money is more valuable to you than the item. You are not exchanging equal value.

Come now. We are going in circles. We all agree that few people think LTV is a correct answer to the paradox. The issue is if Smith believed LTV solved it. He clearly linked the two ideas in his book, but never explicitly said he had solved it (or hadn't solved it). Some books just say that he was confused or that he didn't solve it because he failed to come to the ultimately correct solution (they don't consider wrong solutions solutions). Could we say "Smith tried to explain the paradox by distinguishing between the two kinds of value and by creating the LTV"? Does that satisfy everyone? It's a fairly uncontroversial statement. He was obviously trying to explain it in some way (or else why is it in his book) and whether he thought he solved it may not be knowable. Leonardo 06:51, 15 August 2006 (UTC)

On second thought, that is not much of a resolution... I don't know. How about we just remove the sentence "Proponents of the Labor theory of value saw that as the resolution of the paradox" and leave it at that? Leonardo 07:07, 15 August 2006 (UTC)
(talking to myself) This this site says quite concretely "Smith recognized the paradox, but did not solve it." Perhaps we should say that Smith propounded on the subject and used it to demonstrate a need for seperating the types of values, but could not come up with a unified solution. Leonardo 07:07, 15 August 2006 (UTC)
Problem with that is is that he explicitly basis his LTV theory on the water and diamonds thing(rhetorically) - I think that's what we should focus on. We should, IMNSHO, call it AN answer to avoid being POV, and avoid any attempt to suggest that it was definitive--Red Deathy 07:48, 15 August 2006 (UTC)

We are arguing in circles. We had an agreed-on position which keeps being overturned by people that want to put forward an absolutist position. Unless Smith said that he couldn't solve this paradox, it is not OK to say that he was 'puzzled' by it, or anything like that. No matter how many secondary sources put words into his mouth, they can't be preferred to a primary source (himself) in this instance. I repeat my challenge: cite Smith. (And incidentally Dullfig, if you read Critique of the Gotha Program you would know your presentation of Marx is quite incorrect.)--Jack Upland 11:12, 17 August 2006 (UTC)

ok, let me be the devil's advocate: Why does it matter that Smith wasn't puzzled? He could be absolutely sure he found the answer, and yet be %100 wrong! How many people throughout history have postulated theories of which they where absolutely sure was correct, only to be proven later they where wrong? It absolutely does not matter that he felt he was right. Do we no longer subject theories to peer review? The amount of labor that goes into making something may very well be a factor in its value, but so are other factors such as:
  • scarcity
  • usefullness
  • supply and demand
  • marginal utility (do you already have one or not...)
That is what Ayn Rand's point was, that everytime a buyer and a seller come together, there is a unique set of circumstances that determine the outcome. And because each human is unique, and each circumstance is unique, one cannot make global determinations of the value of objects based on any intrinsic properties of the object itself. So yes, LTV is not the answer to the paradox, and newer theories had to be developed. That is how the article should present it. -- Dullfig 19:10, 17 August 2006 (UTC)

Dullfig, the reason why it matters whether 'Smith was puzzled' is that this is a factual issue and since the article takes him as the starting point this is relevant. Numerous secondary sources say that Smith outlined the paradox but was unable to solve it - but this is misleading and shouldn't be repeated here. OK?--Jack Upland 06:48, 20 August 2006 (UTC)

[edit] Objectivist opinion

The Objectivist opinion section says "One objection (raised by "objectivists," followers of philosopher Ayn Rand), is that the concept of marginal utility ignores the fact that items have some inherent properties that make them useful. The fact that the farmer has chosen to store grain in sacks and not pebbles, is because grain has the property of being edible, a property that pebbles lack." I don't think it is an objection. Marginalism is premised on the subjective theory of value which says that for a an object to have market value is that it must have properties that make it useful (and it is not in umlimited supply). The reason people want any particular object is precisely because it is useful in satisfying their wants. Remember "value" here refers to market price. It is a theory of why people are willing to pay for things and why they are willing to pay more for one thing than another thing. Rand's theory is not a theory of market value. I don't see a conflict. Economizer 16:38, 12 September 2006 (UTC)

This article [1] suggests that Rand doesn't have a problem with it. Economizer 17:59, 13 September 2006 (UTC)

[edit] Marginal Utility and relations of distribution

I'm not sure this sectionis helpful (specifically, relevent) it sounds more like an argument for the marginal utility page - I propose it merge with the main MU section, if someone puts a tridy little citation on it.--Red Deathy 08:30, 19 October 2006 (UTC)

Frankly I think it should be left out of the article entirely as it basically makes no sense. It is based on a falty understanding of the income effect and substitution effect. Prices are still determined by marginal utility and marginal costs no matter what the income distribution may be. A change in income changes the marginal utility of the last good that the consumer can buy given his budget. So marginal utílity still determines the prices. It is exactly this kind of confusion we need to get rid of so I say delete the section entirely. MartinDK 12:56, 19 October 2006 (UTC)

I’m not sure it belongs in an article on the paradox of value, though I’m not sure any discussion of neoclassical economics belongs in an article on the paradox of value. As for a citation, it’s largely the thrust of the work of Piero Sraffa, especially his most famous work ’Production of Commodities by Means of Commodities”. Neoclassical theory has never really responded to this criticism except to say that ”Piero must be confused, pay no attention to him”. Sraffa was a very rigorous mathematical economist and was not the osrt of economist who confused substitution and income effects. I take the critcisms to suggest that income distribution is neoclassical economics dirtly little secret. Given the famous requisite properties of neoclassical economics, agents can indeed consume more and more until the marginal utilitiy of each commodity they consume just equals the price. But if the omniopotentm, omniscent, omnibenelopvent auctioneer changes those prices to something else then agents will happily alter their consumption of every commodity until the marginal utility derrived from each just equals the new set of prices. The criticism is probably tied up with path dependency too. --Cplot 02:22, 20 October 2006 (UTC)
I think some kind of discussion of neoclassical economics does belong here simply because the reader might want to know what the paradox of value is essentially a criticism of. You make an excellent point about consumers automatically weanting to change their consumption. Indeed, the idea that consumers are eternally greedy seems far fetched. However, it is actually possible to use classical utility maximation even if one assumes that agents aren't "greedy" but might care about other things like social considerations etc. However, the problem that almost always arises is that of multiple equlibria. This is why neoclassical economics seems to shy away from studying that situation. But it certainly does deserve attention. However, I stick by my point that marginal utility still determines prices no matter what the income distribution may be. I will have to study the original text by Sraffa to fully understand what the criticism is all about though. My point was based on the text in the article. Finally let me point out that this kind of criticism is by no means restricted to followers of Marxist economics. Although not mainstream as such there is a fairly extensive amount of research on this. MartinDK 14:12, 20 October 2006 (UTC)

Sraffa was not a Marxist. He was a professor of economics at Cambridge University and a close friend of Wittgenstein. --Cplot 16:01, 20 October 2006 (UTC)

Yes, and we know there were no Commos at Cambridge, don't we?!--Jack Upland (talk) 18:45, 22 February 2008 (UTC)

[edit] Labor theory of value

I don't think the labor theory of value was used to explain the diamond water paradox. Why is that section there?Anarcho-capitalism 19:56, 24 October 2006 (UTC)

Because Adam Smith used the Water/Diamond Paradox to explain the labour theory of value - his text clearly reads to me as if LTV were an answer to the paradox--Red Deathy 07:41, 25 October 2006 (UTC)
He doesn't use that to explain the labor theory of value. If you think so, how does the labor theory of value explain why water is less expensive than diamonds even though water is more useful to life?Anarcho-capitalism 07:52, 25 October 2006 (UTC)
LTV would say that water is less expensive because it takes less labour to obtain water, whereas finding diamonds is highly labour intensive (when you take into account all the hours of fruitless searching)/cutting, refining, etc. of the whole diamond inddustry. And that is the point, utility and price are utterly distinct in LTV--Red Deathy 09:20, 25 October 2006 (UTC)
Adam Smith never argued such a thing. Where do you see that in Wealth of Nations? Smith did not have an answer for the paradox. It doesn't answer the question. The question is about utility. Smith did not even think labor determined price, except in a theoretical primitive economy with no profit.Anarcho-capitalism 16:04, 25 October 2006 (UTC)
It's the cited section of wealth of nations (Note 3), and at the very least Ricardo and Marx both thought that Smith proposed a version of LTV (suitable secondary sopurces I'd say). The Paradox is indeed about utility, and LTV answers it by saying that value/price is not proprtional to utility.--Red Deathy 07:15, 26 October 2006 (UTC)

To clarify this point, you need to read both of Smith's passages cited in the text (unfortunately the link won't take you direct - you'll have to search). Smith doesn't present the diamond-water issue as a 'paradox' but as an illustration of the difference between 'value in use' and 'value in exchange' Immediately following he writes:

'In order to investigate the principles which regulate the exchangeable value of commodities, I shall endeavour to shew,
First, what is the real measure of this exchangeable value; or, wherein consists the real price of all commodities.'

Clearly Smith isn't at all puzzled by the issue. And he then goes on to outline the LTV (as cited).

The point with the 'theoretical primitive economy' is complex. Such an economy wasn't so primitive to Smith. Nor was it purely theoretical, especially for settlers in North America etc. Anyhow, it is clear Smith sees such an economy, where the LTV operates, as the basis of the present economy he is discussing. You can't dismiss it as irrelevant. And it's not that the 'primitive' economy has no profits, but that in Smith's view there can be no profits for the employing capitalist as prices are identical with labour costs. This is, of course, the point of departure for Ricardo and Marx.--Jack Upland 05:57, 12 November 2007 (UTC)

[edit] Smith

I removed some erroneous issues on Adam Smith: he did not acknowledge the diamond-water paradox. He felt that it was obvious why precious metals and diamonds have a higher price than water (scarcity). That while they had little intrinsic utility compared to their price, they were used as a compact means of exchange; as opposed to oxen or copper bars - specifically because they were so valuable, which was specifically because they were so scarce. Much of the rhetoric of Nations is for the purpose of illustrating how people and grounps artificially raise the price of goods and services by artificially reducing their supply.

It is pointed out in the article: Murray Rothbard wrote that Smith was unable to solve the diamond-water paradox. This is true, but Smith didn't mention it in the first place; he didn't even try to solve it. For him, there was no paradox. --Joe54897415 08:47, 14 July 2007 (UTC)

No, that's not true. Read the original passage. Smith proposed the 'labour theory of value' as a means of resolving this issue.--Jack Upland 09:56, 23 July 2007 (UTC)

[edit] Murray Rothbard Section

I deleted the section with the heading "Murray Rothbard". Murray Rothbard's support for Marginal Utility should have been noted in the Marginal Utility section or not at all. His own section is unnecessary when his views add nothing new or distinct to the paradox of value.--Weaklygodlike 07:58, 3 October 2007 (UTC)