Why is diamond expensive than water? - Value Paradox

Anne Robert Jasques Turgot,in 1769,he cautioned that in despite of being something that is highly needed water is not considered a valuable thing in wetlands.Seven years later,Adam Smith,carried that one step further:According to him,high amounts do not paid for water in despite of there is nothing valuable more than water.Even though there is a few value in  terms of usage "generally for against diamond are paid very high amounts." he said.So there is a clear dilemma about the value of certain goods and the importance for people.

Marginal Utility

This paradox can be explained with the help of a concept known as marginal utility.Marginal benefit is the amount of pleasure received from the last unit of the consumed goods.In 1889 Austrian economist Eugen Böhm Von Bawerk,explained with the example of a farmer with five sacks of wheat.Farmer puts in order the sacks from more important(own food) to insignificant(for feed the birds).If he lose one of them sacks he will be give up to feed birds.The farmer needs wheat to feed his stomach, but the price he will pay to replace it in the fifth sack is small,because  the fifth sack corresponds to a small pleasure( to feed birds). The water is the something exist abundant;but the diamond is exist rarity.There is a high marginal utility of an extra diamond; so it has much higher value more than an extra jug water.

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Taxes

Benjamin Frankin said "In this world nothing can be said to be certain, except death and taxes." in 1789.In fact, he was not the first person to complain about taxes.Governments has tried to collect money by various methods since existence.King William was prepared the Domesday records to find out who will tax;Chinese citizens must pay the income tax since A.C 10.

             Even taxes today,one of the most controversial subjects in policy.President George H.W. Bush still to be remembered "Read my lips:No new taxes." Unfortunately,the fiscal status of State contradicted him and after four years with a few tax increases,the voter makes a choice against him at the next election.

             People since the beginning of history,they were rightly opposed to struggling and taking their money from their hands.Moreover,past collectors more cruel than the current tax collectors.Those days, if the villagers and workers couldn't pay their taxes,they had to sell their wives and sisters as slaves.Having to give taxes without giving direction to the politics (for example, without the right to vote) causes many complaints and eventually the signing of Magna Carta in 1215, the French Revolution, the Boston Tea Party and the American Civil War.
       
              The tax on all these examples,remains on the heap as well as the fact that many citizens of the world today have to give.Those days, in general the taxes less than 10% and not taken annually;there is temporary taxes collected during wars.Today,even in Switzerland, which has never entered the war, an average worker pays 30% of her/his salary.

             The Art of Taxation What changed? Basically, welfare state and social security systems were born in the last half of the 20th century.The countries around the World,promised to pay public securitys pendings,health,education,unemployment,old-age insurances.They had to provide this extra money;because they need to spend more than their old counterparts.Taxation was the solution.

             It's not just income taxes (deductions based on someone's salary).Hereafter governments could choose inside of huge tax menu:Value gain tax(A deductible tax from the sale of an investment that is valued),inheritance tax (the taxes placed on the deceased),estate tax (the taxes placed on real estate);import and export tariff taxes(also known as customs duty),environmental tax(oscillation taxes) and wealth taxes(taxes from one person's assets).

             In lots of country both government and local managements have tax collection authority.The local managements trust to estate taxes,government trust to income taxes.

            In that case,since middle of the 20th century,The taxes assume the task of fund-raising institutions that protect citizens (army, police, emergency services etc.), as well as redistributing wealth among those who are rich and needy.Also in general,as the country gets richer,the taxes will increase which is taken from.

            Smith's Tax Rules He determined four rules for taxation in his book:

1. People should contribute by proportional with their incomes.This mean the higher earners will pay higher taxes.The progressive income tax applied in lots of countries;high income groups pay taxes higher than poor groups.Both of tax rates and tax invoices is higher.Today, there is an income tax exemption in the increasingly proportional income tax system.After this segment is overpaid, people pay a certain amount of taxes from their salaries to a certain amount,When this amount is exceeded, they pay more taxes and this goes like this.
2. The taxes don't be arbitrary,must be accurate.Time and payment method should be open to everyone.
3. The taxes should collect in an appropriate time.
4. Taxes should not be more than necessary for both the citizen and the state.In other words,the choices people make in their everyday lives should be as effective as very little.Increasing the marginal tax rate can prevent people from working harder.But,it is a very important argument issue because some of people think like the tax system will encourage the people to do "good things" and as a tool to keep him/her away from others.For instance, governments take high taxes from cigarettes and alcohol for public health.

Limits of  the taxation As the taxes increases,people search for the way of payments.As the taxes many governments of the world encountered with that situation.Some of workers be obliged to pay %70 or higher marginal tax rate(o,the tax they pay for every earned extra dollars and pounds).Rather than doing extra work, they started to work less, pay pensions instead of paying extra income, or carry their money to overseas countries.In an age when money can be transferred from one part of the world to another by pressing a single button, it has become very difficult to prevent the overseas transfer of money.That is why governments have to keep their taxes very competitive.However, over time taxes began to overlap on to each other, and each passing day the system beczme more complex and stubborn.Young William Pitt,when he put into action the first income tax of England in 1798, he insisted on that like it just a temporary for Napoleon Wars for defray the war expenditures.

Ricardo Equality

           The theory of Ricardo Equality (took its name exactly from David Ricardo) upholds that governments should not finance tax reduction by taking debt.

            In general tax reduction seems like good way for the reinvigorate the economy: There will be more money in pockets of people and in theory they spend this money.However, governments to borrow money to cover the tax reduction, according to some economists it provides no benefit.Because it will be temporary solution and it will come back with more tax and more less public expenditure in the future.The Theory of Ricardo EqualityEven if it criticizes the unwarranted tax reductions,this idea don't be effective to stop politicians.

What do I mean by all these paragraphs? 

• "Taxes are as inevitable as death."

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The Benefits of the Invisible Hand

Smith argued that these three ingredients would lead to a "natural harmony" of interests between workers, landlords, and capitalists.Recall the pin factory, where management and labor had to work together to achieve their ends, and the woolen coat that required the"joint labor" of workmen, merchants, and carriers from around the world. On a general scale, the voluntary self-interest of millions of individuals would create a stable, prosperous society without the need for central direction by the state. His doctrine of enlightened self-interest is often called "the invisible hand," based on a famous passage (paraphrased) from The Wealth of Nations: "By pursuing his own self interest, every individual is led by an invisible hand to promote the public interest" (423).

             Adam Smith's invisible hand doctrine has become a popular metaphor for unfettered market capitalism. Although Smith uses the term only once in The Wealth of Nations, and sparingly elsewhere, the phrase "invisible hand" has come to symbolize the workings of the market economy as well as the workings of natural science (Ylikoski 1995).

             Defenders of market economics use it in a positive way, characterizing the market hand as "gentle" (Harris 1998), "wise" and "far reaching" (Joyce 2001), one that "improves the lives of people" (Bush 2002), while contrasting it with the "visible hand," "the hidden hand,"
"the grabbing hand," "the dead hand," and the "iron fist" of government, whose "invisible foot tramples on people's hopes and destroys their dreams" (Shleifer and Vishny 1998, 3^1; Lindsey 2002; Bush 2002). Critics use contrasting comparisons to express their hostility toward capitalism.To them, the invisible hand of the market may be a "backhand" (Brennan and Pettit 1993), "trembling" and "getting stuck" and "amputated" (Hahn 1982), "palsied" (Stiglitz 2001, 473),"bloody
(Rothschild 2001, 119), and an "iron fist of competition"
(Roemer 1988, 2-3).

             The invisible hand concept has received surprising praise from economists across the political spectrum. One would expect high praise from free-market advocates, of course. Milton Friedman refers to Adam Smith's symbol as a "key insight" into the cooperative, self-regulating "power of the market [to] produce our food, our clothing, our housing" (Friedman and Friedman 1980, 1). "His vision of the way in which the voluntary actions of millions of individuals can be coordinated through a price system without central direction . . . is a highly sophisticated and subtle insight" (Friedman 1978, 17; cf.Friedman 1981).Not to be outdone are Keynesian economists. Despite its imperfections, "the invisible hand has an astonishing capacity to handle a coordination problem of truly enormous proportions," declare William Baumol and Alan Blinder (2001, 214). Frank Hahn honors the invisible hand theory as "astonishing" and an appropriate metaphor."Whatever criticisms I shall level at the theory later, I should like to record that it is a major intellectual achievement. . . . The invisible hand works in harmony [that] leads to the growth in the output of goods which people desire" (Hahn 1982, 1, 4, 8).

Smith's References to the Invisible Hand

             Surprisingly, Adam Smith uses the expression "invisible hand" only three times in his writings. The references are so sparse that economists and political commentators seldom mentioned the invisible hand idea by name in the nineteenth century. No references were made to it during the celebrations of the centenary of The Wealth of Nations in 1876. In fact, in the famed edited volume by Edwin Cannan, published in 1904, the index does not include a separate entry for "invisible hand." The term only became a popular symbol in the twentieth century (Rothschild 2001, 117-18). But this historical fact should not imply that Smith's metaphor is marginal to his philosophy; it is in reality the central element to his philosophy.

               The first mention of the invisible hand is found in Smith's "History of Astronomy," where he discusses superstitious peoples who ascribed unusual events to the handiwork of unseen gods:

Among savages, as well as in the early ages of Heathen antiquity, it is the irregular events of nature only that are ascribed to the agency and power of their gods. Fire burns, and water refreshes; heavy bodies descend and lighter substances fly upwards, by the necessity of their own nature; nor was the invisible hand of Jupiter ever apprehended to be employed in those matters. (Smith 1982, 49)

             A full statement of the invisible hand's economic power occurs in The Theory of Moral Sentiments, when Smith describes some unpleasant rich landlords who in "their natural selfishness and rapacity"pursue "their own vain and insatiable desires." And yet they employ several thousand poor workers to produce luxury products: The rest he [the proprietor] is obliged to distribute . . . among those. . . which are employed in the economy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice. . . . [T]hey divide with the poor the produce of all their improvements. They are led by an invisible hand to,... without intending it, without knowing it, advance the interests of the society. (Smith 1982 [1759], 183-85)"The third mention, already quoted above, occurs in a chapter on international trade in The Wealth of Nations, where Smith argues against restrictions on imports, and against the merchants and manufacturers who support their mercantilist views. Here is the complete quotation:As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.... [A]nd by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it.

             By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. (Smith 1965 [1776], 423)

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Work-Sharing

The Spanish guy looked in front of his enormous view and admiringly,sighed. In 1439 Venice, he came for to see how these Italian cities armed the battle ships.In his homeland this job was troublesome and it takes days,but in this place Venetians could equip ships in less than an hour,in front of his eyes.But how Venetians  managed to do it?

               In Spain the ships are connected to the docks and the mass of workers were equipping it with munitions and backups.In Venice the ships pulling over to the canal and the different producers of gun and munitions,while the ship was passing, they were releasing their goods to the deck. The stunned Spanish tourist took notes of this condition on his diary.He observed the more ideal work-sharing example:He was the witness of the mechanism of the World's first assembly line.

               The underlying idea is simply,to divide the work and we will be able to produce more, better with the specialization of the job that each unit performs best.In fact the work-sharing using for years.In Antique Greek, it was a well-known method;it was present in factories of during Adam Smith's times.But only at the beginning in 20th century,Henry Ford and with his Model-T car, it tooks the perfect form.

               The Work-Sharing,first it was efective on to start the Industrial Revolution,different countries,it provides to increase their productivity and wealth.Every product that might come to mind today was produced with the work-sharing.

               Manufacturing Confusion Imagine a basic pencil.Production includes many different stages:cutting wood,removal of the relevant substance and shaping,stigmatization,varnishing,eraser attachment.There is one more hand labor to procude one pencil.

              Until the time of Adam Smith, the work-sharing was not explained by a simple theory.Smith in his book '' The Wealth of Nations '',gives the example of the famous needle factory.This,in 18th century England,a factory that manufactures small needles by hand.Smith says it's hard to make a needle in the house of an ordinary man at home, and Smith says the job is divided among various experts in the needle factory:

One man draws out the wire; another straights it; a third cuts it; a fourth points it; a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on is a peculiar business; to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. 

Adam Smith, The Wealth of Nations pg:14-15 

             According to Smith,in a factory of 10 people,through work-sharing,can be produced in a day 48,000 needles.It means increase %400 thousand in productivity. A group to work like this way,it makes much of the total of what the self-constituting individuals can do.

              Naturally,centuries ago it is the prototype of factories created by Henry Ford. Ford designs an assembly line, in which each of the workers will add a new piece to it, which will pass the different workers' teams in front of the automobile.Hereby,it can produce automobiles by spending far less money and time it takes to make cars.

            To Know the Strong But work-sharing doesn't finish here.Imagine a company,get better than workers fromthe manager of the company is in charge,in administration,in accounting,in marketing and building cleaning..All these officials from inside they will choose the most profitable for theirselves,for others assigns others.

            Same way, of a automobile producers,in seats leather to sound system,It would be very pointless for him to do all the parts of the vehicle by theirself.Some of jobs( or all)  leave it to the expert companies,to supply the pieces from them and it is more profitable to pick them up and assemble from them.

             Smith,devoloped that idea to one step forward.Work-sharing not to be only in among a different people,but also he proposes to be in among different countries and cities too.

              Dangers of Divisions There are some problems with the work-sharing too.The first one of this-many fired employers was witnessed of this-it is difficult for someone who specializes in an unsolicited craft to find another job.One hundered automobile worker,mine worker,steel worker,iron worker....etc when the factories are closed,they were unemployed in the past years.Secondly, a factory could become completely dependent to a person or a group of people.This,these people's over whole process,they will have the power to abuse it if they wished it.

              Third, of individual in single job and condensation on expertise,it can make it increasingly reluctant.To repeat one work to all day,according to Smith's statement it leads to a situation called ''Mental Disabling.'' It prevents to progress of people mental capacities and alienate them to each other.Karl Marx agreed too.In fact Marx said,in the Communist Manifesto,workers became increasingly desperate and at the end of they will rebel against his bosses.

               The alienation caused by job sharing, the incredible earnings it provides, must be compared.Work-sharing it was the reasons of modern economics growing and shrinking and it was the very important parts of economic logic's.

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Adam Smith:The Invisible Hand

Gordon Gekko, the villain of 1980's classic movie Wall Street,said ''greed is reasonable'' and he justified all community's fears about the financiers.Disgraceful money ambition,in the brutal World of Manhattan it is not something to be ashamed of anymore;like striped shirt red trousers hanger,it should be wear proudly..

            The film shocked everyone ends of the 20th century,but think about how people would respond such a declaration two centuries ago.At that time intellectual life was under the control of the church and it was considered almost insulting to describe people as "economic animals".And now Adam Smith's the idea of ''Invisible Hand'',you can think how people respond it in 18th century more or less.Even so,Smith's book has reached to commercial success and it has been finished at first edition;it is still on classics.The Individual interest is short name of ''The Invisible Hand'' and the law of supply-demand and it explains how these two factors are beneficial for society.The simple idea behind it is:It is not wrong for people to act in their own interests.In a liberal market,to act in their own interests of people,total actions,it does benefit all society and it make rich all.

            Smith,classic work of 1776 him '' The Wealth of Nations '' it has been used that phrases three times.But the important paragraphs of work,it has been emphasized importance of ''The Invisible Hand'':

[Every individual] neither intends to protect the public interest nor knows how much s/he can protect it.While managing this [her/his own] business by the method that will reach the maximum value,s/he works only for his/her own benefit,and like in many other subjects,in this,too,and invisible hand makes him/her a part of the work s/he has never intended to do...By affording advantage for his/her own, most of the time,s/he can protect the benefit of society more effectively than the time that s/he has intended to protect it. I've not seen so far that the people acting as if they were trading in the public interest help. 

References Adam Smith,The Wealth of Nations, Chapter II - Of Restraints upon Importation from Foreign Countries of such Goods as can be Produced at Home  
         
              This idea,of free market,the reason of development in complex modern societies,it helps to understand that it is so important.

              The course to be taken from ''Invisible Hands''  Let's examine an inventor:Thomas Edison. Thomas has invented a new bulb;more effective from at markets,long-lasting and bright.Thomas had made it for his own interests.;being rich,also maybe hoping to be famous.The related emerged product will be useful for society;it will creat employment both for bulb producers and for it will brighten demanders life.If there was no demand for bulbs,nobody wouldn't pay to Thomas and so invisible hand would have punished him for falling into such a mistake.

             Similary,others who see Thomas's job and earn money will also try to make more money from him by designing a better bright bulb.They will start to being rich.But the invisible hand never sleep.At this time Thomas will try to reduce prices and will try to sell more than opponents.

             Thomas,at every stage of the process,act for his own interests,doesn't think of society's interests,but unexpectedly the result benefit to all.

            Smith specifies that the "invisible hand" is a condition in which we can not operate.One of these,as known ''public property tragedy'' impasse.A related source of- for instance everyone who grazing animals on lands - ,it creates the being limited problem.People,even if their actions are against their neighbors,they continue to using green areas.

           The limits of free market In the past decade,the invisible hands doesnt support a related political perspective in fact.In the past decade,the invisible hands does not support a certain political perspective in fact.It is an optimistic theory [please check Micro and Macro],but it goes against the ideas of those who think that the economy should be best managed from the top, or that the government should decide what to produce.

           The invisile hand, beside governments and managments,underlines that individuals must decide what is produced and consumed.But,there is important conditions;Smith,makes a distinction with between in individuals own interests and selfish greed.The laws and regulations that protect us from injustice as a being consumers are our own interests.These are,contain property rights,patents and copyrights and workers' rights.The Invisible Hand should support with laws.

``Main MESSAGE
The benefit of the individual is the benefit of the community.

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Adam Smith

      

Adam Smith 

''The Wealth of Nations''

           

              Firstly,We need to know who is Adam Smith? Some of us know him as ''Father of Economics''but a lot of people know him as a professor of philosophy(moral). Mr.Smith was born in Kirkcaldy,Scotland in 1723. Mr.Smith has a fantastic life of his whole life. It wasn't a very ordinary life that is why his perspective was changed. At the age of four Mr.Smith was kipnapped....A few months later,Mr.Smith was found by his uncle. 

             Mr.Smith had an early educational life. At the age of fourteen Mr.Smith  started education as a student about moral philosophy in Glasgow University*. At the relevant university, Mr.Smith have the thoughts of Fredoom,Law.... His family was religious. Mr.Smith thougt like '' Religions is blocking Economics.'' So Mr.Smith's Economic thoughts are on atheism.At the relevant university Mr.Smith became professor. Mr.Smith attended more than fifteen conference whole of his professor life. Mr.Smith wrote a book about some of his conference in Glasgow name of ''The Theory of Moral Sentiments.'' With that book his fame started to known by others.The other book of him name of ''An Inquiry into the Nature and Causes of the Wealth of Nations.'' with this book Mr.Smith became famous.

          Mr.Smith died in 1790 in Edinburgh,Scotland. His testament was fulfilled by his friends. Mr.Smith left many notes and unpublished writings behind him, but instructed him to destroy everything that was not suitable for publication.

Signature of Adam Smith

The Wealth of Nations

         The main theme of this book ''Economic Growth''  We could call the book as a ''Handbook of Classical Economy.'' 

         One of the main points of the books is that although the free market seems complex and uncontrollable, it is actually directed by a "invisible hand" to produce the right amount and variety.

Mr.Smith knows the reasons why people move into action, because they were *selfish and greedy.*

The positive reasons of that competition in the free market, it showed to helpful all society by keeping prices down. For Mr.Smith at the same time this competition encouraged him to produce more various goods and services. Mr.Smith destroyed with his all power to get rid of state restrictions.As a matter of fact,some of the affections of government interventions,including the custom tax, caused inefficiency and in the long run(long-term) it caused high prices. Laissez-faire theory meaning of ' Let it go ' ,in next times, especially 19. Century affected the government laws.

The Main Topics of What The Book Mentioned

• Full competition
• Capital
• Invisible hand
• Division of Labour
• Labor
• Price
• Money

Theories

• Price Theory
• Labour Value Theory
• Rant Theory

Price Theory

         According to Adam Smith There is real price and nominal price.Real price is the cost of obtaining the goods,depends on labor, in the long run(long term) the real price applies to all goods.The nominal price is the price arising from short-term fluctuations in supply and demand balance or changes in market conditions.

Labour Value Theory

         According to Adam Smith one goods has  two kind of value. First one is benefit,second one is barter value with other goods.The first value usually varies from person to person, depending on the value of each person, and is difficult to calculate from a society perspective.

Rant Theory

Adam Smith talks about five kinds of rant.

• Net income
• The price paid to soil owner to make production from the soil rent.
• The profits that soil owners earn because of their monopolistic situation.
• The market of distance rant.
• Rarity rant.

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