What is another name for diamond–water paradox?
The paradox of value (also known as the diamond–water paradox) is the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market.
The philosopher Adam Smith is often considered to be the classic presenter of this paradox, although it had already appeared as early as Plato's Euthydemus. Nicolaus Copernicus, John Locke, John Law and others had previously tried to explain the disparity.
Smith denied a necessary relationship between price and utility. Price on this view was related to a factor of production (namely, labor) and not to the point of view of the consumer. The best practical example of this is saffron (the most expensive spice), where much of its value derives from both the (low yield) from growing it and the disproportionate amount of labor required to extract it. Proponents of the labor theory of value saw that as the resolution of the paradox.