Diamonds aren’t forever

If I’ve learned anything from James Bond, it’s that you can’t trust anybody whose name is a double entendre and that Diamonds Are Forever.  Turns out, the only reason diamonds are forever is that you’re stuck with one once you buy it.

Diamonds aren’t all that rare.  They’re produced in mass quantities in the Earth’s mantle.  However, relatively few of them survive the trip to the surface where we can find them.  Even so, diamonds are less rare than many other gem stones, including rubies and emeralds.  In fact, there are enough diamonds in the world for every man, woman, and child on the planet to own a cup full.

So what makes them so expensive?  In a word, marketing.  In two other words, price fixing.  In economics, supply and demand dictate what anything is worth.  A lot of money chasing very few goods will cause prices to rise.  Very little money going after plentiful goods will cause prices to fall.  If five grocers have ten oranges each to sell, and fifty people all want an orange, then prices will be relatively stable.  However, if next week sixty people want oranges, prices will rise because now there are consumers competing against each other for limited supplies.  Similarly, if the week after that only forty people want oranges, prices will tend to fall as the grocers compete to sell their whole stock of oranges before there is nobody left to sell to.  But what happens if there’s only one grocer, and he has all fifty oranges?  Well, that’s what we call a monopoly, and that grocer can basically set whatever price he feels like for oranges.

Similarly, in the modern diamond market, there was only one serious player from the 1870s until the late 1990s.  The De Beers family of companies owned and operated every significant diamond mine in the world, and moved swiftly to buy up any new mines that were discovered.  By controlling supply, they effectively controlled the price of diamonds.  They sold to wholesalers in a take-it-or-leave it fashion, with no price negotiation possible, and wholesalers would usually be too afraid to refuse the price, knowing that De Beers could easily cut them off entirely, effectively killing their business.  Whenever competing stones did make it to market,  De Beers used a number of tactics to keep them from causing the price of diamonds to go down, ranging from simply buying up the diamonds themselves and stockpiling them to punishing wholesalers and retailers who sold the stones by refusing to sell to them anymore.

Supply is, however, only half of the equation that determines price.  The other half is demand.  It doesn’t do any good to be the world’s only supplier of a product nobody wants to buy.  Which is exactly where De Beers found themselves in the late 1930s.  Worldwide demand for diamonds had started to dry up.  Other gems were more popular for jewelry, and the idea of diamond “engagement rings” had never really caught on in much of the world, and was fading rapidly even in the places where it had started to catch on, such as the United States.

De Beers decided to change that.  They concentrated on the American market, figuring image conscious Americans would buy anything they were told to buy.  In a concerted effort that continues to this day, De Beers promoted the idea that diamonds are an essential part of the courtship ritual.  Through their “a diamond is forever” campaign, they convinced men and women alike that the way a man proves his love for a woman is to drop three months salary on a diamond ring.  They turned the diamond engagement ring into a status symbol women can show off to each other and men can use to prove their economic viability.  If he can’t afford the two carat monster, he’s just not worth it, ladies!  De Beers literally put a price on true love.  And the fucked up thing is, it worked.  Better, perhaps, than even De Beers had dared hope.  Today it’s just ingrained in the psyche of most Americans (and to a lesser extent, Europeans and a swiftly growing number of Chinese) that one of the necessary steps of the courtship ritual is for the man to spend vast sums of money on on a diamond ring for his chosen lady.  Women are conditioned to expect it (and even to feel slighted when the ring is too small or, heaven forbid, not a diamond at all) and men are conditioned to expect to pay three months salary on the ring and to feel ashamed if they attempt to spend less.

All of this comes directly from De Beers marketing campaigns!  Certainly the idea of an exchange of rings to signify marriage dates back to antiquity, and the giving of betrothal gifts was common long before De Beers came along.  But it wasn’t until the 1930s that the idea that the betrothal gift should be specifically a diamond ring was perpetuated–and it was all done by one company in order to increase demand for the product that they alone provided.

So what is one to do?  Diamonds hold their worth, or so we’re told, so even if you bought into the marketing scam and dropped the big bucks on a ring, you can still get your money back now that you’ve thought better of it, right?  Well, De Beers had this covered as well.  Part of their “a diamond is forever” campaign was to convince people to see diamonds as heirlooms.  You wouldn’t sell grandma’s ring because it has sentimental value–unlike, say, her old cane or that crazy hat she wore to go shopping.  When you do try to sell, you quickly discover that no jeweler will pay you even a third of what the ring cost.  Despite the slogan, diamonds really aren’t forever.  They can get damaged, chipped, or even burned (they are just carbon, after all).  Even if your ring is still in perfect condition, no jeweler will pay you anything close to what you paid for it because they have a ready supply of all the diamonds they need from wholesalers–they’re not actually rare, remember.  A thriving secondary market in diamonds would hurt De Beers, so they have done everything they can to discourage people from selling at all.  And since we’ve been conned into thinking diamonds “hold their value”, many jewelers will be unwilling to make any offer at all on your ring, since they know that any offer they could reasonably make would be far less than what you paid for it, and you’d realize the lie you were sold.

In the late 1990s, several things happened that effectively ended the De Beers monopoly on diamonds.  New, very large mines in Australia, Russia, and Canada came online.  De Beers tried  to gain control of these mines (and they do own several mines in Russia and Australia) but was unable to keep the genie in the bottle.  After more than a century of owning more than 90% of the world’s supply of diamond producing mines, they now find themselves with anywhere between 40% and 70% of the market (estimates vary).

Oddly, the price of diamonds did not collapse as many predicted.  Why it didn’t is blamed on “various world economic factors”, but clearly it boils down to this.  Nobody is going to kill the goose that lays the golden eggs!  A diamond mine is no good if you pump out so many diamonds so quickly that the price plummets.  So it is very likely that now instead of a monopoly in the diamond industry, we now have a trust–several large companies working together behind the scenes to keep the price of their product stable at an artificially high level.  Of course, they do compete for your business between the different “brands”, they just don’t compete on price since they know that’s a losing proposition for everybody.  Instead, they tell consumers not to buy the other guy’s diamonds because they could be funding genocidal wars in Africa (so-called “conflict” or “blood diamonds.”)  Don’t buy Russian diamonds because those fund the Russian mob!  Australian and Canadian diamond mining is damaging to the eco-system (and probably to natives too, I’m sure!)  You basically have to pick your poison, since they all have their drawbacks–but hey, you have a choice now, right!

Really the only “clean” diamonds are synthetics.  But guess what?  The diamond cartel is conditioning you to hate those as well.  They want you to think that only diamonds plucked from mother earth are “real” diamonds–never mind that synthetic diamonds can be made today that are only distinguishable from natural diamonds because they are too perfect.  They are in every way real diamonds (diamonds are just carbon crystals, remember–there’s absolutely nothing special about diamonds dug out of the ground that makes them any different from today’s lab produced diamonds.)  And the process is still so expensive synthetic diamonds can’t compete on price even with the artificially inflated price of natural diamonds.  And anyhow, who is to say that when the process is perfected and real, perfect diamonds can be pumped out of a factory faster than any mine can produce them, the manufactured diamond makers wont choose to tacitly join the cartel anyhow?  Undercutting the mined diamonds only serves to make their product look “cheap”, and the last thing anybody wants said about their diamond engagement ring is that it was “cheap!”

So how about this?  How about we do what Adelie penguins do.  Part of their mating ritual involves bringing each other rocks, too.  But they don’t show them off to other penguins or brag about how much they spent on them.  These rocks are free, and found everywhere on the ground.  The penguins use them to build a nest for each other.  Isn’t that far more romantic?  Never mind that I left out the part about how they steal the rocks from each others nests constantly, causing much commotion and squabbling.  It’s still better than what we do, I think.