Edward Jay Epstein has a fascinating look into the history of diamonds and how a single group of investors conspired to invent the world's premier luxury consumable. This story is particularly timely considering De Beers' ongoing campaign to promote right-hand diamond rings for single women.
In 1870, however, there was a radical change in this situation. Huge diamond "pipes" were discovered near the Orange River in South Africa.
These were the first diamond mines ever discovered. Now, rather than finding by chance an occasional diamond in a river, diamonds could now be scooped out of these mines by huge steam shovels. Suddenly, the market was deluged a growing flood of diamonds. The British financiers who had organized the South African mines quickly came to realize that their investment was endangered: diamonds had little intrinsic value, and their price depended almost entirely on their scarcity. They feared that when new mines developed in South Africa, diamonds would become at best only a semi-precious gem.
As it turned out, financial acumen proved the mother of invention. 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 the mines' production and, in every other way that was necessary, perpetuate the scarcity and illusion of diamonds. The instrument that they created for this purpose was called De Beers Consolidated Mines, Ltd., a company incorporated in South Africa.
As De Beers penetrated and took control of all aspects of the world diamond trade, it also assumed many protean forms. In London, it operated under the innocuous name of the Diamond Trading Company. In Israel, it was known under the all-embracing mantle of "the syndicate." In Antwerp, it was just called the CSO-- 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 such names as the Diamond Development Corporation or Mining Services, Inc. At its height, it not only either directly owned or controlled all the diamond mines in southern Africa, it also owned diamond trading companies in England, Portugal, Israel, Belgium, Holland and Switzerland. It was De Beers of course that organized the Japanese campaign as part of its worldwide promotion of diamonds.
By 1981, De Beers had proved to be the most successful cartel arrangement in the annals of modern commerce. For more than a half century, while other commodities, such as gold, silver, copper, rubber and grains, fluctuated wildly in response to economic conditions, diamonds continued to advance upward in price each year. Indeed, the mechanism of the diamond invention seemed so superbly in control of prices-and unassailable-that even speculators began buying diamonds as a guard against the vagaries of inflation and recession. Like the romantic subjects of the advertising campaigns, they also assumed diamonds would increase in value forever.