The paradox of Water & Diamonds

Human beings cannot even survive without water, whereas diamonds were mere ornamentation. Yet water had a very low price, and diamonds a very high price.

Adam Smith explained the paradox by arguing that value had two different meanings: One is called 'Value in Use'; and another, 'Value in Exchange'.

The things which have the greatest value in use have frequently little or no value in exchange;

On the contrary, those which have the greatest value in exchange have frequently little or no value in use.

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