The Value of Water and Diamonds: Back to Square One

Abstract

Taking the water–diamond paradox as a time-honored challenge, at first the structural value theorem is derived from the set of structural axioms. This enables a reevaluation of classical and neoclassical conceptions. Ricardo realized that there are two entirely different kinds of markets but excluded the secondary markets by defining commodity in a restricted sense. Walras’s markets are secondary markets by construction. Primary markets thereby drop from sight. Since secondary markets presuppose primary markets the marginalistic approach is hanging in the air. The structural axiomatic approach demonstrates that the pricing in primary and secondary markets depends on different principles.

Keywords: new framework of concepts, structure-centric, axiom set, theory of value, harmonic structure, generic markets, pricing, profits, distributed profits, winnings

JEL Classification: B41, D01, D40, D46