The Truth About Diamonds

The Truth About Diamonds An expensive meal at a fancy restaurant, a
declaration of romance, and a big, fat diamond ring- this is a pretty standard formula for
an engagement proposal. After all, it has been ingrained in all of us that a diamond
ring equals love and the bigger the diamond, the more love there must be. Well, believe
it or not, diamonds really aren’t all that rare. In fact, the reason diamonds cost so
much is more due to savvy (and sometimes unethical) business practices and incredibly successful
advertising campaigns than the actual inherent value of the stone based on supply and demand,
something anyone who has actually tried to sell a diamond quickly comes to realize. Here
now is the story of how and why we all fell in love with diamonds. The first known diamonds discovered by humans
happened about 700 or 800 BCE in India by the Dravidian people (who are still found
today in southern India and Sri Lanka). In fact, this is where we get the unit of weight
for diamonds, carats, from; they would weigh the diamonds in relation to the seeds of carob
tree. Diamonds appear in ancient tales dating back
to at least 2500 years ago, including ones involving Alexander the Great and Sinbad the
Sailor. Pliny the Elder, in his 78 AD encyclopedia Natural History, also spoke of diamonds. Eastern
traders brought them to Europe, along with silk, spices, and other exotic goods, and
they were used as valuable trade items. But those ancient diamonds weren’t the stunning,
brilliantly cut stones we know today. They were dirty, rarely cut or polished correctly,
and were often quite dull. The dazzling stones we recognize from modern times are put through
labor-intensive cutting and polishing (which is where much of the real, albeit relatively
small, value of all but the largest of diamonds actually derives from). As Joan Dickinson’s
book The Book of Diamonds puts it, diamonds could lie around unnoticed for decades in
the ground of India before a “knowledgeable eye (could) spot a diamond in the rough.”
Even with diamonds being found in the jungles of Brazil in the early 19th century, and including
India’s contribution, the entire world production of gem diamonds was only a few pounds per
year at this point. That all changed in 1869. Prior to 1869, South Africa’s main exports
were wool and sugar, nothing that was rare or native exclusive to the region. There was
really nothing there prior that interested Europe. (Hence why “The Scramble for Africa,”
the nickname for the European takeover of Africa, didn’t begin until 1881.) So what changed? In 1866, a young Boer (a
word referring to a South African farmer of Dutch or German descent) found a 22 carat
diamond (for comparison, nearly half the size of the Hope Diamond) in a stream bed near
Vaal River in modern-day South Africa. Three years later, an 83 carat diamond was found
by a shepherd boy near the Orange River in South Africa. Nicknamed the “Star of South
Africa,” the diamond touched off a rush in South Africa with the British leading the
way. Soon after, four mines were dry-dug and the largest diamond deposit ever was found.
The largest of these mines was called the Kimberley Mine, or the “Big Hole.” Diamonds came out of those mines by the ton.
The value of land in the region, and subsequently the rest of Africa due to the hope that there
were more diamonds to be found, shot up. A titanic struggle-turned-war for land began
between European powers, most notably Britain, and the Boer population who lived in the region.
For four months between December 1880 and March 1881, the First Anglo-Boer War raged.
The British would end up winning, but at a much higher cost of manpower than originally
thought. 408 British soldiers were killed, while only 41 Boers. 18 years later, the second
Anglo-Boer war would commence with even greater casualties. Meanwhile, the fighting and the sheer amount
of diamonds coming out of the South African mines were making the British owners of the
mines quite nervous. The value of their product depended on scarcity and demand. With too
many diamonds and a market fearful of the violence, the demand was dropping and value
of diamonds went down. In the late 1880s, diamonds were essentially a semiprecious stone
(equivalent to today’s turquoise or topaz) and many of the mines were at-risk of closing. Enter British native Cecil Rhodes who got
his start renting water pumps to miners in 1869 at the beginning of the South African
diamond rush. From the money earned, he bought up claims of land from smaller mining operations.
When many small operations were closing and selling land due to the over-saturation of
diamonds in the market, Rhodes was buying. Ignoring the more-established Kimberly Mine,
he made the purchase that would send him into history. The old De Beer mine was owned by
two Boer brothers, Johannes Nicolaas de Beer and Diederik Arnoldus. Rhodes bought it off
them for, at the time, a reasonable price. As Rhodes’ empire continued to grow, the
immensely wealthy Rothschild Family (or at least, their bank) providing some financial
backing (it is unclear how Rhodes and the Rothschild knew each other), and as every
other South African mine leveled off, the De Beers did not. In 1888, as diamond prices continued to fall,
there were only a few mine owners left, including Rhodes and his De Beers mine. The remaining
mine owners decided that the only way their industry would survive was, instead of competing
with one another, to consolidate and form one giant mining company. The intention was
to create a monopoly in the industry, centering all the production, mining, and lands in the
hands of one corporation. And that corporation was De Beers Consolidated Mines, Ltd headed
up by Cecil Rhodes. From that point forward, the De Beers Company was nearly the sole owner
of every single South African mine. Rhodes and De Beers created individual subsidiaries
and “trading companies,” to make it look like these were different companies operating
independently. They were not and all were part of the parent De Beers Company. Today,
these would be called shell corporations and would be illegal in most regions of the world.
Essentially, what De Beers was able to do was to set one standard, or “fixed,” diamond
price, with minimal fluctuation between their subsidiaries, and make it look like the market
set the price. Now, the actual supply and demand value didn’t matter anymore because
De Beers controlled all of the supply. As a 1982 The Atlantic article put it, “De
Beers proved to be the most successful cartel arrangement in the annals of modern commerce.” Upon Cecil Rhodes’ death in 1902, De Beers
owned ninety percent of the world’s (not just South Africa’s) diamond production,
but after years of ruthless business practices, his company was about to be outsmarted. The Premier mine (later called the Cullinan
mine, after the town it was located in) was one of the only mines not owned by De Beers,
despite overtures from the company about buying it. The owners didn’t want to contribute
to the De Beers monopoly, so instead they sold to independent dealers, the Oppenheimer
brothers. In 1905, the largest rough diamond ever found was in the Premier mine, weighing
in at an absurd 3,106 carats. Now, the Oppenheimer brothers, particularly Ernest Oppenheimer,
were in business. Ernest Oppenheimer knew that, while his own
Anglo American Corporation was doing well, no one would be able to defeat De
Beers at this time. So, he took the expression
“if you can’t beat them, join them” seriously. Using his newfound wealth, he bought
enough shares of De Beers to land himself on the board of the company. By 1926, he was
the second largest shareholder in the company, behind only Solly Joel. As it turned out,
Joel and Oppenheimer were friends and had already conceived a plan where Oppenheimer
would become chairman of the board. Oppenheimer did exactly this and renamed the company the
Diamond Corporation. The Oppenheimers would hold control of the company until 2011. In 1938, the diamond industry was again in
decline, thanks to the discovery of mines in Australia, Siberia, and Western Africa
and the Great Depression reducing sales, which again saturated the market. So, Ernest sent
his son, Harry, to New York City to meet with the ad agency N.W. Ayer, which was the same
agency that helped their financial backer Morgan Bank. Together, they realized that
the United States was a significantly under-tapped market for diamonds. They just need to figure
out a way to convince Americans to buy their product. They did just that by using the happiest
and, perhaps, occasionally most irrational of human emotions – love. Using newspapers, magazines, the new medium
of movies, and even a series of lectures at high schools across the nation centered around
diamond engagement rings, they constructed the illusion that diamonds equaled love, with
a bigger (and more expensive) diamond meaning more love. “A Diamond is Forever” was
shown in ads depicting young lovers getting married or on their honeymoon. (In truth,
diamonds are easily shattered, burnt and turned into carbon dioxide with the help of an abundant
supply of oxygen, chipped, etc.) These ads appeared everywhere, often using big name
movie actors to foster this connection. And it worked – by 1944, the sale of diamonds
had increased by 55 percent in the United States from just a few years before and were
now inexorably tied to love and marriage, as well as being seen as a highly valuable
item that would last forever. This idea of diamonds being “forever”
and to be passed on from generation to generation was a particularly important notion. You see,
as more and more diamonds were held by individuals, eventually there would be so many out there
that if people started trying to sell them, the reality of the value would be discovered
and the price of cut diamonds would also ultimately no longer be controllable by De Beers, something
not lost on the company. Thus, diamonds not only had to be forever held by the individual,
but the idea of buying a used diamond to show affection had to be firmly taboo. Harry Oppenheimer
commented on all this in 1971: A degree of control is necessary for the well-being
of the industry, not because production is excessive or demand is falling, but simply
because wide fluctuations in price, which have, rightly or wrongly, been accepted as
normal in the case of most raw materials, would be destructive of public confidence
in the case of a pure luxury such as gem diamonds, of which large stocks are held in the form
of jewelry by the general public. In any event, thanks to a virtual monopoly
and perhaps the most effective ad blitz of all time, diamonds were here to stay and,
again, De Beers could set its price, no matter if supply was high or low. In fact, the higher
the price, the more love one was now demonstrating. De Beers repeated these types of campaigns
throughout the developed world with resounding success. For instance, in Japan in 1967, diamond
engagement rings were given only 5% of the time. Within a decade, thanks to some savvy
advertising, more than half of all engagement rings in Japan had diamonds on them, with
that number rising steadily ever since. Today, thanks to a series of very recent events,
including several lawsuits and something in the way of a revolt by several diamond supplying
nations against De Beers, De Beers no longer has a stranglehold on the diamond market,
but the idea that diamonds are the traditional way to demonstrate true love and that one
should spend two months’ salary on a diamond engagement ring (an idea embedded into popular
culture via an old diamond ad campaign, first as one month’s salary, and later increased
to two with the slogan “How else could two-months’ salary last forever?”) has kept the diamond
industry remarkably profitable. After all, even for those who know all this about diamonds,
thanks to popular perception, giving the gift of a diamond is still the defacto way to convert
money into a demonstration of love, with no immediate end in sight.

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