Second of two parts
The diamond market, one might assume, should be largely impervious to the technological forces of disruption that sway so many other, less earthbound enterprises. A diamond is a diamond, after all — a treasured gem, immutable, unchanging, a value beyond the whims of fashion and time. Diamonds are forever.
The history of the diamond market, however, tells a different kind of tale. It is a story not of imperviousness but invention — what the writer Edward Jay Epstein has termed the “diamond invention,” which he describes as the “creation the idea that diamonds are rare and valuable, and are essential signs of esteem.” This invention is largely the work of a single company, De Beers, who have repeatedly reinvented our idea of what a diamond is and should be worth across three centuries.
It isn’t as if diamonds have not been regarded as valuable throughout the recorded history of humankind. The word itself derives from the Greek “adamao,” which means “I subdue” or “I tame” and in adjective form, “adamas,” was used to describe an impenetrable substance, thus eventually becoming synonymous with the sparkling, transcendent gems that trickled into Europe. It is believed that Alexander the Great first brought diamonds back to Europe in 327 BC after his foray into India. They were an immediate marvel. “Diamond is the most valuable, not only of precious stones, but of all things in the world,” wrote Roman naturalist and philosopher Pliny the Elder.
Royals in Europe began wearing diamonds as jewelry in the 13th Century. So rare were the gems that France’s Louis IX, as was his wont, established a law reserving diamonds for the king. But in 1499 the first event occurred that opened up the supply of diamonds to Europe — Portuguese navigator Vasco da Gama sailed around the Cape of Good Hope and thus became the first European to reach India by sea, providing a way for commerce to occur unimpeded by the kingdoms of Arabia. By the 17th Century diamonds were worn even by the merchant class. In the 18th Century, the supply further increased as diamonds began arriving from South America. Diamonds, usually worn at night as they were considered to conspicuous for the daytime, were now worn at nearly all important festivities.
Then in 1868 vast diamond deposits were discovered in South Africa. This was a game changer. The previously rare gems were now being scooped out by the ton; for the first time, diamonds flooded the world market. The British, who operated the mines of South Africa, realized that only by maintaining the notion of diamonds as rare could their value be maintained. Hence they launched a South Africa based cartel, De Beers Consolidated Mines, Ltd., in order to control the market. De Beers would indeed utterly control that market for the next 130 years. The company did so not just by controlling supply but also demand.
Necessity is the mother of invention. the Great Depression was not a time for glittery, expensive things, and so by the late 1930 the value of diamonds had crashed. De Beers hired an ad agency to rectify this situation, and they did so by promoting diamonds as a symbol of undying love for wedding rings. It was one of the most successful ad campaigns in history, and included an early use of product placement — movie stars were recruited to wear diamonds, not just on screen but in personal lives, in order to equate the diamond life with the good life. De Beers even sent out speakers to high school student assemblies in the United States to promote the idea of a diamond as a symbol of enduring love. As explained in a strategy document from the Ayers ad agency, “We spread the word of diamonds worn by stars of screen and stage, by wives and daughters of political leaders, by any woman who can make the grocer’s wife and the mechanic’s sweetheart say ‘I wish I had what she has.'”
It worked, quite fantastically, and is still working today. Diamonds became the only gem that would do for a wedding ring. De Beers successfully spread this idea to Japan in the 1960s, and now is doing so in China, where diamond rings are increasingly a part of nuptials.
And to end where we began, the moral of this tale is about the assigning of value. De Beers, of late, face a technological threat of market disruption: the making of synthetic diamonds. First they fought it, now they are producing synthetic diamonds. They are doing so by telling another tale: synthetic diamonds are for the smaller milestones of life. It’s no longer, “Diamonds are forever.” It’s “Live, Laugh, Sparkle.”
Given De Beers’ track record, it would appear unwise to bet against that value proposition.