Paradox of Value and Empiricism

Beginning with Smith, Economists have studied an example that they characterize as a "paradox": that water is vital need, but people pay much less for it than for diamonds, for which there is no vital need.  One influential solution offered has been on the basis of what is called the Marginal Utility theory of Value, according to which a commodity that has multiple uses diminishes in Value, and the price that someone is willing to pay is in part determined by the least of the sequence of values.  So, because of a combination of plentiful supply and the inessentially of the use to which water is put once vital needs are satisfied, e. g. to comb one's hair, its Marginal Utility is much less than the difficult to get and usually single-use diamonds.  Indeed, based on the adequacy of this solution, some have elevated Marginal Utility to the status of best theory of Value in general.  Regardless, a different explanation dissolves the paradox.  According to this explanation, the inconsistency between Price and Value is one between, perceived Use-Value and actual Use-Value, between Appearance and Reality, between Belief and Knowledge, a distinction proposed by, notably, Aristotle and Spinoza.  However, most Economists of this tradition cannot recognize any such distinctions, since, like Smith, they are Empiricists, and, hence, accept Appearance as Reality.  Likewise, they cannot even begin to entertain the Rationalist diagnosis according to which much of what they study is, especially when there are disposable resources available, ignorant or foolish behavior, i. e. their concept of 'rational behavior' is unacceptable to Rationalists.  So, Smith's "paradox" is, according to this alternative explanation, a symptom of a fundamental methodological flaw--on the basis of which the irrationality of paying a lot for diamonds, with respect to which the value of water is irrelevant, is interpreted as 'rational', thereby creating an only apparent paradox.