His argument is far from flawed. He's right.
No, his argument is total flawed because just because something has some small amount of value does not mean a shopkeeper wants to pay for it and have it clogging up inventory space when even when he does sell it, it will give him little to no profit.
It's not a question of the value of the items, the question is, what is the value of the items to people who buy/sell/trade.