Water is worth more than diamonds and costs less
Adam Smith spotted the puzzle in 1776 and couldn't fully solve it. The answer took another century, and it's about your fifth bag of grain, not your first.
You cannot live a week without water. You can live a lifetime without ever touching a diamond. And yet water is nearly free while a diamond can cost a year's salary. Adam Smith wrote the puzzle down plainly in The Wealth of Nations in 1776, calling it the difference between "value in use" and "value in exchange" — but his own labor-based theory of price couldn't fully explain why something so essential traded for so little.
The fix arrived a century later, from economists working independently in Austria, England, and Switzerland, and it hinges on a shift so simple it's easy to miss: price doesn't track how useful a category of thing is. It tracks how useful the next unit of it is to the specific person buying it.
Imagine a farmer with five sacks of grain. The first sack keeps him alive — priceless, in the literal sense. The second lets him keep working. The third feeds his animals. By the fifth sack, he's feeding pigeons for entertainment. If you ask what one sack of grain is worth to him, the honest answer depends entirely on which sack you're taking.
Water is abundant enough that most people are deciding what to do with their tenth or hundredth gallon, not their first. Diamonds are so scarce that even the first one is a luxury. The category doesn't set the price. The margin does.