The Value Equation
How is it determined and what does it mean?
I’ve been thinking a lot about value these days—especially in relation to luxury goods and well of course, jewelry. What makes something valuable? We often assume that value is inherent, but the more I reflect on it, the more I see that value is constructed through factors like scarcity, desire, and social perception. This may very well turn into a ramble of a post, but bear with me as I try to break this down.
1. Value is Socially Constructed
Value, at its core, is not intrinsic to objects themselves. Instead, it is a product of the collective beliefs and agreements of society. Take diamonds, for example. Contrary to what many people believe, diamonds are not rare. Their scarcity is a myth that has been carefully engineered—most notably by the diamond industry, particularly De Beers. They created a monopoly that tightly controlled the supply of diamonds, thereby creating an artificial scarcity that made them seem far more valuable than they are. As Aja Raden points out in Stoned (I highly recommend this read!), “People will pay for what they believe is valuable, even if it isn't rare—because value is an idea, not an object.”
“People will pay for what they believe is valuable, even if it isn't rare—because value is an idea, not an object.”
Diamonds became synonymous with engagement rings, a tradition that feels timeless, but it’s important to remember it’s a relatively recent phenomenon created by savvy marketing. The value of a diamond engagement ring is cultural, not inherent.
So, value can be understood as a collective belief. An object becomes valuable when enough people agree that it is. This belief can be manipulated through marketing, tradition, and social expectation. Think of how luxury brands cultivate exclusivity, creating the perception that their products are scarce and desirable, even when they may be mass-produced. This brings us to another aspect of value—scarcity.
2. Scarcity and Desire Create Value
Scarcity, whether real or manufactured, plays a pivotal role in determining value. We see this everywhere, from rare gemstones to today’s luxury handbags. Scarcity fuels desire because people want what they cannot easily obtain. When an object is perceived as rare, people attribute more value to it. But scarcity isn’t always natural—it’s often orchestrated to elevate value. The diamond industry, as mentioned, provides a prime example. Rare stones like Colombian emeralds or Burmese rubies are valued not just for their beauty, but because of their perceived scarcity.
“Scarcity breeds desire; desire drives demand; and demand creates value. It's a cycle as old as time.”
This cycle can be seen across history. From the ancient world’s obsession with gold and silk, to 17th-century Europe’s tulip mania, to today’s Birkin bags and vintage Rolex watches—scarcity magnifies desire, which, in turn, elevates value. But as we think about scarcity, it's important to remember that it doesn’t always have to be real. It only has to be believed. Whether through limited editions or clever marketing, perceived scarcity can be just as effective at creating value as true rarity.
3. Value vs. Wealth
Another fascinating idea I’ve been contemplating is the relationship between value and wealth. While we often think of these two terms as interchangeable, they’re not the same. Value only translates into wealth when it can be exchanged—when someone is willing to pay for that value.
An object, no matter how rare or desirable, only generates wealth if there’s a market for it. This means value is fluid and depends on who is assigning it, and under what market conditions. An engagement ring or a painting by a famous artist is valuable not because of the inherent qualities of the materials, but because someone assigns meaning, status, or emotional attachment to it.
In this sense, value is a kind of promise—a belief that an object is worth something. Wealth, on the other hand, is the realization of that promise, the moment when value is converted into actual capital. The true exchange of wealth happens when someone invests real money in the idea of value, whether that’s a gemstone, a stock, or a rare antique.
“…value is a kind of promise—a belief that an object is worth something.”
By thinking about value as something created, not inherent, we start to see the ways in which scarcity, desire, and perception all play essential roles in shaping the world around us. Value is a reflection of what we collectively believe is important—whether for status, sentiment, or scarcity—and that belief has the power to create wealth when someone is willing to pay for it. It’s a fascinating and complex cycle, one that applies to everything…literally everything…
What are your thoughts on how value is shaped in today’s world? Do you agree that it’s all just perception?
I recently wrote about the value not being intrinsic to the thing itself and it is fascinating to find your piece which also addresses this idea. I learned a lot. Thank you for sharing!