A friend just sent me this old Atlantic article on the diamond market. It’s an old piece, but it’s an amazing study of the manipulation of markets and the creation of demand:
The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds. The instrument they created, in 1888, was called De Beers Consolidated Mines, Ltd., incorporated in South Africa. As De Beers took control of all aspects of the world diamond trade, it assumed many forms. In London, it operated under the innocuous name of the Diamond Trading Company. In Israel, it was known as “The Syndicate.” In Europe, it was called the “C.S.O.” — initials referring to the Central Selling Organization, which was an arm of the Diamond Trading Company. And in black Africa, it disguised its South African origins under subsidiaries with names like Diamond Development Corporation and Mining Services, Inc. At its height — for most of this century — it not only either directly owned or controlled all the diamond mines in southern Africa but also owned diamond trading companies in England, Portugal, Israel, Belgium, Holland, and Switzerland.
De Beers proved to be the most successful cartel arrangement in the annals of modern commerce. While other commodities, such as gold, silver, copper, rubber, and grains, fluctuated wildly in response to economic conditions, diamonds have continued, with few exceptions, to advance upward in price every year since the Depression. Indeed, the cartel seemed so superbly in control of prices — and unassailable — that, in the late 1970s, even speculators began buying diamonds as a guard against the vagaries of inflation and recession.
The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever — “forever” in the sense that they should never be resold.
Read the whole article.
I’d like to know if McMegan or the Reasonoids have ever gushed about how wonderful all of this is. They must have at some point.
fucen tarmal
as fred sanford said: and so are the payments.
The Grand Panjandrum
It is for this very reason that I have never purchased, nor owned, a diamond. The market is strictly artificial and the conditions under which they are mined is beyond deplorable.
SiubhanDuinne
And look how popular culture has played right along: Lillian Russell and “Diamond” Jim Brady in the 1890s; the song “Diamonds are a Girl’s Best Friend” from, what? the 1930s or ’40s; the whole competitive Elizabeth Taylor-Richard Burton “my diamonds are bigger than yours” thing in the 1960s and ’70s. Not to mention the manufactured romance of curses on certain famous stones.
Calvin Jones and the 13th Apostle
I’d like to know if McMegan or the Reasonoids have ever gushed about how wonderful all of this is. They must have at some point.
Email it to them and ask for comment. Tell them a blog post is a preferable avenue of reply. ;-) The other thing I wonder is how much diamond jewelry(besides engagement/wedding rings .. and women’s earrings) do the average person/couple actually buy.
BC
When I got married in 1969, I specifically asked Mr BC not to get me a diamond. But, he did get me one for the 40th anniversary, simply because he always wanted to buy a diamond. Now I have to put it on my homeowners insurance so if I lose it, I can get it replaced.
Jason Bylinowski
@The Grand Panjandrum: Good for you. Same here. I read an article very similar to this but much more recent, which pretty much turned me off of natural diamonds forever, because of two things that it alleged: 1.) that DeBeers was stockpiling utterly massive quantities of diamonds- massive as in football field sized warehouses stacked from floor to hangar ceiling – simply in order to create that important sense of rareness and of course to artificially inflate their sell value. and 2.) that DeBeers had actually gone so far as to try to sabotage, antagonize and possibly even assassinate scientists who work in synthetic diamond research, at least until DeBeers themselves started their own research arm.
It really doesn’t get a whole lot more despicable than that.
SiubhanDuinne
@The Grand Panjandrum: I can’t claim never to have owned a diamond. My husband (well, fiancé at the time) had his grandmother’s diamond ring and had the stone reset for me. It was beautiful and I wore it gladly, but some years after the divorce, when I was really hurting for money, I pawned and never redeemed that ring, and I have to say I don’t miss it at all.
Re the deplorable conditions of diamond mining: I believe Canada has had a pretty effective “bloodless diamonds” campaign going for a few years to promote their own industry. No idea, though, of the actual conditions of Northern mining — and regardless, it’s still an articial market.
WereBear
That is why I got an amethyst for my engagement ring. It is actually rarer than diamonds!
AnotherBruce
You mean that markets are often controlled and manipulated by powerful interests and not magic pixie dust? Unpossible.
Linda Featheringill
Hey. Capitalism runs on the strong exploiting the weak. ‘Twas ever thus.
Nicole
BC- I requested the same thing (no diamond) but my fiancé (now husband) wasn’t happy about that. So I said a vintage ring would be okay (I have issues about metal mining practices, too). Highly recommend the used jewelry route to future grooms and brides. More environmentally sound (reduce, reuse recycle!) and, since people seem to want new shiny all the time, you can get a much nicer ring setting for less than it would cost new. I’m not a jewelry person, but he really did find a very pretty ring.
Whackjob Militia Leader soonergrunt
McMegan and the Reasonoids–great band name there for some retro-50’s and 60’s pop/punk fusion act.
Of course they’re fine with this. This is the way things are supposed to be. You get to be as cruel and exploitative as your individual skills and abilities will allow you to be. It is the nature of things, and any external regulation of this by something like a government drawing its power from the consent of the governed is immoral and wrong.
pablo
Diamonds now can be grown in a lab that are almost impossible to tell from the genuine article. In the next few decades, they will not be detectable, and be produced in massive quantities, at a low, steady price.
When that happens, diamonds will go down the path of the Un-cultured pearl.
Alchemy!
El Cid
More Communists in the New York Times whining about how anti-regulatory ideologues (responsible capitalists) kept warning relevant government agencies about how their regulatory capture by Big Finance would ruin the nation. And they were right, of course:
See? These fleas on Greenspan’s Randian ass were just trying to suppress the “financial innovation” that we needed in the wake of the Phil-Gramm & wife shepherded Enron scam.
See, ordinary schmucks like me felt like there were huge lessons to be learned from Enron, that it and similar scandals were hugely indicative of a deeper rot, but then, the gods of FREEMAHKET knew better, which is why everything was fine until Nancy Pelosi and Barney Frank made Fannie & Freddie steal all those banks’ money and give all those poor black people free houses.
celticdragonchick
Tanzanite is a beautiful stone (violet blue color between amethyst and blue topaz), and works well with other stones like tourmaline.
O/T
My grandmother on my Dad’s side died very unexpectedly in her sleep yesterday morning or the night before. My dad found her and it was pretty rough. I am flying back to California on Tuesday for the funeral and family business. My Profs at Guilford College have been notified. Any positive thoughts, prayers etc would be appreciated.
Thanks,
Annemarie
GReynoldsCT00
OT, but cracking up at the new banner statement: A Dingo Ate My Baby
Calvin Jones and the 13th Apostle
GReynoldsCT00:
I get “Han shot first.”
SiubhanDuinne
@CelticDragonChick: I am so sorry. I will be holding you, your father, and your grandmother’s spirit in my mind and heart. White light to you all.
Mako
Could I suggest also exiting exposes on the National City Lines scandal and the AMA monopoly?
Julia Grey
I absolutely DESPISE those television ads that equate diamonds with love.
Or, worse yet, imply that a man will GET love if he gives them: “Every Kiss begins with Kay!” Essentially saying, just give her expensive jewelry and she’ll “pay you back,” guaranteed.
Absolutely vomitous.
The ones (“He went to JARED’S!”) in which women squeal together over jewelry are almost as bad.
These ads distill the most ugly and vulgar elements of consumer culture and try to pour them out as sweet, sweet, wine.
Of course, I’m not crazy about C=ia=lis ads, either. (What’s with the bathtubs? Do not get.)
Julia Grey
Annie, so sorry. Your poor Dad.
Undercover FBI Agent DougJ
McMegan and the Reasonoids—great band name there for some retro-50’s and 60’s pop/punk fusion act.
Ha!
SiubhanDuinne
@Julia Grey: Indeed. Diamonds as whore trophies.
Citizen_X
@celticdragonchick: Very sorry to hear about your grandmother. My condolences.
PurpleGirl
celticdragonchick @15: Oh, that’s terrible. I hope your family will find peace and comfort.
Re the De Beers cartel: A diamond is forever is the most successful advertising tag line ever. It was created in 1948 and is still their primary slogan. De Beers also began to have their own retail outlets in the early 2000s — a New York store opened in 2005.
zoe kentucky in pittsburgh
Absolutely, very well stated.
I wear a 3-stone tanzanite ring as my engagement ring, one large and two side stones in a white gold ring. (Cost $220) My partner and I were together for a few years before marrying, so the stones represent past, present and future. I love it. I can’t imagine ever wanting, wearing or having a diamond. (I think the only one I’d ever have one is if someone in my family gave me theirs.)
Emily
I got engaged in 1970. My husband-go-be gave me a bicycle instead of a diamond. He was my kind of guy then and still is.
My mother had two big diamond rings that had belonged to my dad’s mom. Grandma had died before my parents were married. When my mom died, he offered the diamonds to me and when I declined, he offered them to his two daughers-in-law. Several years later I heard him complain that he had two diamond rings that he couldn’t give away.
I guess common sense runs in my family.
Emma
Annemarie: I am so, so sorry. That’s a hard thing to have happen. Peace and blessings on your whole family.
ronathan richardson
Yglesias had a pretty good post on this a week or two ago–basically, being a businessman in a competitive free market really sucks–you’re always on the verge of collapse. And the only way to make it survivable over the long term is to get monopolies, legal protection, massive subsidies, externalize costs, or just plain lie, manipulate, and screw over any competitors and customers.
MattF
Yes, diamonds are not particularly rare. FWIW, their material properties are quite unusual– hard, electrically insulating and a huge thermal conductivity many times larger than typical metallic thermal conductivity. On the other hand, it seems like the whole “diamond films will, someday, be used on just about everything” business didn’t work out, I’m not sure why not.
El Cruzado
In my experience the US has fallen into the DeBeers spell much harder than Western Europe. Not that they don’t by them back in the Old Continent, but all the semi-tacit stupid rules about how much diamond to buy and when for the various parts of the courtship process seem to apply mostly only to the US.
I already found the whole thing a senseless artificial social construct and low taste to boot before I read that article a while back, but it certainly helped me set the avoidance of diamonds as an aim by itself. Instead, I gave my fiancee a powerbook, with a promise to keep replacing it as often as needed (once already, probably again next year). Maybe not terribly romantic but she sure has gotten a lot of mileage out of it.
Jeff Fecke
@Julia Grey —
I always think of the Family Guy parody, where the shadow man slips the diamond on the shadow woman’s finger, and then she drops to her knees, followed by the slogan, “Diamonds: She’ll pretty much have to.”
It’s as succinct a summation of the “Just buy her sparkly crap” ad campaign as I’ve seen.
The Other Steve
I bought my wife a diamond ring and i don’t have a problem with that. Yeah it cost some money, but it looks nice.
She also had a ring from her first marriage. We tried to sell it. They ain’t worth much of anything. A ring that cost $1200 to buy 10 years ago is today worth about $250. So instead we took the diamond out and had it made into a pendant. That cost about $400, but it was a local jeweler and it was done custom, not from a catalog. Funny thing is he gave me an appraisal receipt and said the whole thing was now worth $2000. HA!
There’s stories all over about this. Diamonds aren’t worth anything on resale. Back in the 1980s there was some guy who embezzled $20 million from a bank, bought diamonds with the money in Israel and smuggled them into the US. He tried to sell the diamonds and nobody wanted them. The bank caught him, they got the diamonds… and they tried to sell them, and even a legit business on the up and up ended up getting only about $1 million for them.
Let that be a lesson to all you jewel thiefs out there!
WereBear
celticdragonchick @15: My condolences. It’s good that you can be there for them. And they for you.
The Other Steve
One more thing. DeBeers had a pretty good thing going for about a century.
And then they discovered diamonds in Siberia.
So DeBeers went to Russia and had a talk.
And now Russia is part of the Syndicate. Or rather, De Beers buys all of Russias diamonds. So they control the flow.
Ivan Ivanovich Renko
This is why the Renkova has not and will never get a diamond from me, regardless of hints, pleas, tears or threats.
Luckily for me, she likes a well set cubic zirconia almost as much.
celticdragonchick
Thanks everybody. I appreciate it.
Mr. Wonderful
I read that Ed Epstein piece when it first came out–most of you hadn’t been born yet–and it was a revelation. He called the book it grew into The Diamond Invention, which pretty much says it all.
Whackjob Militia Leader soonergrunt
soonerwife got a diamond from her grandmother. from me she gets other stones occasionally, but we prefer to travel so that’s where our money goes.
Vince CA
My wife and I don’t own diamonds. They’re not that pretty, can be artificially created in a lab, and hard rocks on the finger make other tasks (typing, dishes, picking up the baby), more difficult. This isn’t sexist, I’m a SAHD (I do the dishes and pick up the baby), I was offered to re-set an heirloom diamond for our engagement, and I infuriated half my family by refusing it. (I delighted the other half, who took it in my stead).
Some friends of ours even forwent gold rings and just got tattoos on their ring fingers. I thought it was classy, but I’m deathly afraid of needles, so simple gold rings are our tokens of love.
Everybody else i know out there though has bought the De Beers crap, lock stock and barrel. Good for them! How do we get in on the action?
Rob in Denver
@The Other Steve: The reason why there’s little to know resale value is because the entire business operates on credit, or “on memo” as they say in the biz.
A diamond dealer — whether retail or wholesale — never has to carry any inventory and if they do carry inventory they don’t pay the person they got the stone from until they sell that stone. So why should they pay someone off the street top dollar for a stone — that could, in fact, have decent value — if they can get a comparable or better graded diamond pretty much on demand in the market without laying out any cash until after they’ve sold it to their customer?
And the dirty little jewelry business secrets don’t end there. The stone’s the thing. The setting is virtually worthless. Sure, the metal has value — gold, silver and platinum aren’t free. But settings get melted and sold for pennies on the dollar (compared to their insured or retail value).
Ruckus
Steve@33
I was given back an engagement ring (some things in life do work out OK) and tried to sell it.
You are absolutely correct. For all intents diamonds are worthless. Re-sale 10-20% of new cost. At best. And that’s if you can find someone to actually purchase it.
So semi on topic.
What isn’t a scam anymore? What products or process in our daily lives haven’t been made “better”?
HFCS – It’s just like sugar only better
Drugs – Only US drugs are OK, all others are suspect
Health care – US best in the world
Diamonds – A girls best friend
Banks – We’re here to serve you
Insurance – We’re here when you need us
b-psycho
The day their workers take up armed seizure of those fucking mines I will cheer.
Will
Hey, I remember reading a reference to this in an Intro to Econ undergrad textbook, with a clearly conservative author. He basically derided it in passing as a conspiracy theory…it fit in nicely with other drive by opinions like “3rd world sweatshop labor can’t be exploitative since it’s a voluntary contract”.
It was pretty amusing, actually, because I was taking a globalization class at the same time with a text from a liberal author who didn’t hesitate to dismantle those same arguments. A very efficient back and forth!
diamond guy
As a frequent reader of this blog who also works in the diamond industry, I think people should know that that article is close to 30 years old, and the cartel was broken about a decade ago. De Beers’ share of the market is now down to 40%, and prices now rise and fall like other commodities.
Regarding what role governments should play in dealing with a monopoly, the U.S. government was for years the only government to challenge De Beers. Then the European Union came along and started giving them grief as well, and that, along with the fact that it was just an outmoded concept, led to the changes we have seen in the industry.
Also, that thing about diamond dealers never carrying inventory is not true (it’s often true of retailers, not wholesalers.)
Be happy to answer any other questions.
Peace.
Larkspur
Diamonds and I are un-mixy things. Actually, I don’t even like jewelry that much. I never wear rings. It might be because I am defective, girl-wise, but I think it’s more that I’m horrified by de-gloving injuries. Shudder.
Rob in Denver
@diamond guy: I didn’t say they never do carry inventory. I said they never have to carry inventory. My apologies for the practiced v. theoretical nuance. Regardless, you’d agree that rest of what I wrote is accurate? At least that’s my recollection (I used to work for Jacques Voorhees at Polygon).
diamond guy
Hi, Rob in Denver …
I know your former company (and JV’s former company) quite well.
You are correct that many retailers don’t have to have inventory, and that is partly because of Polygon and Rapnet and all the others. But I don’t think the mountings are necessarily worthless — some are quite pricey.
I guess the underlying point is whether diamonds have resale value. As Epstein says, if you buy one from a retail jeweler, and try to resell it back to him (or anyone else), you won’t get nearly what you paid for it, because they are going to subtract their margin, and obviously they have access to a lot of stones besides yours.