Some things in life are accepted without any questions, and most of these relate to social norms. We never wonder why exactly we shake hands when we greet someone. Or for that matter, child marriage was common and accepted, until recently. The point is, society is malleable, and every now and then, there are disruptive events which change how society perceives certain norms or objects. Diamonds are a great example of how society can be manipulated into a certain kind of behavior. Spoiler alert: They aren’t as valuable as you would like to believe.
The word “diamond” conjures up images of romance and luxury. An engagement is practically incomplete without the exchange of diamond rings. It has invaded pop culture, with the iconic James Bond film “Diamonds Are Forever ” in the early 1970s to Rihanna’s song “Diamonds” where she croons “…shine bright like a diamond…” It can be argued that it is a necessary luxury. And there is no question that they are expensive. Some might think because they are very rare and extremely difficult to mine. However, the story of why diamonds are so valuable, is a story of romance and engagement; romance with money and engagement with devious business practices.
It is believed that diamonds were first discovered in Northern India, in around 3000 BCE. They were used as a medium of exchange, just like metal. However, it is only in the late 19th century that the value of diamonds rocketed to astronomical prices. De Beers is one of the most reputed and powerful companies in the diamond industry. Till the late 1980s, it controlled more than 90% of the world’s diamond production. This company was founded by Cecil Rhodes, a very controversial British magnate who was also an imperialist. He infamously remarked, “I contend that we are the first race in the world, and that the more of the world we inhabit the better it is for the human race” The history of the De Beers company, beginning from the late 19th century is one which merits attention, and proves the power of economic manipulation.
Cecil Rhodes started his business by renting out water pumps to mining companies. After gaining considerable capital, he bought mines from two Dutch brothers who were called De Beers, thus the namesake company. In the late 1880s the prices of diamonds were going down in modern day South Africa because of the discovery of new mines. Mining companies were concerned about this, and decided to form a single company which resulted in the De Beers conglomerate, headed by Rhodes. Following that, the company strictly regulated the supply of diamonds. They had a single channel of supply, that is, all the diamonds they produced (including the production of its subsidiaries) were sold through one channel. Also, when Namibia and Botswana discovered diamond mines, De Beers entered into an equal equity partnership with the governments to ensure that they had control over the diamond production from these countries as well.
De Beers started an aggressive marketing campaign, with the help of N.W. Ayer’s agency, in the late 1930s. Thus came the birth of probably the most iconic advertisement tagline of the previous century: “Diamonds are forever.” These polished stones were equated with love and romance, and the ad agency went as far as to give lectures at school to young girls, to reinforce the idea they were selling to the American population. Movie stars adorned the stone and they were marketed as “rings of eternity.” As society started to accept the concept that diamonds are indeed a symbol of love, and engrave love into eternity, De Beers strictly regulated the supply of diamonds, to maintain lucrative prices and make astronomical profits. The company had “sightholders”: Companies that were selected by De Beers and were offered fixed quantities of rough diamonds to be sold. Given the monopolistic hold over diamond production, this ensured that prices increased and the industry never collapsed.
However, just as diamonds can be shattered, the company lost its control over the production of this gemstone in the last few decades. Companies in Australia and Canada refused to join De Beers’ single supply channel, thus presenting themselves as threats to the company’s power. This effectively reduced De Beers’ production control from 80% to 33% in 2013. Furthermore, the Anglo American Company bought over the majority of the company and is now led by the Oppenheimers.
The next time when you want to buy a diamond as a gift, keep in mind that you are victim to a brilliant marketing gimmick. Diamonds are valuable, because we think they are. The inherent value of a diamond can only be attributed to its hardness as a stone, which is why it is used in industrial glass-cutting equipment. Jewelry retailers usually have a 200% markup on the stone, when they sell it to their customers, and are generally unwilling to buy it back from them. This would mean that they have to buy it at wholesale prices, which would mean that the gig of “Oh, the diamond I bought is so valuable” is up.
It is time to realize that diamonds are not all they are hyped up to be. Get your significant other something which has true value, maybe a copy of their favorite album. Totally unrelated, I am a big fan of Eminem’s Marshall Mathers LP.