The idea that diamonds rare and valuable, and are essential signs of wealth, esteem, and financial well being is a fairly recent development. The price (or value) of any object is governed by two forces – its supply and the demand for it in the market. Let’s look at both these factors to delve deeper into diamond pricing.

Until the late 19th century, diamonds were found only in a few river beds in India and in the jungles of Brazil, with the entire world production of gem diamonds amounting to only a few pounds a year. In 1870, however, huge diamond mines were discovered in South Africa, where diamonds were being scooped by the ton. Suddenly, the market was filled with diamonds. The British financiers who had organised the South African mines quickly realised that their investment was endangered; the diamond price depended entirely on its scarcity. And thus was created an entity called De Beers Consolidated Mines, Ltd – a company that would control production and go on to perpetuate the illusion that diamonds were scarce.

Here’s how De Beers controlled the diamond supply chain. They owned most of the diamond mines. For mines that they didn’t own, they bought out all the diamonds, intimidating or coercing competitors who tried resisting their monopoly.

They then transferred all the diamonds over to the Central Selling Organisation (CSO), an authority of independent companies which they indirectly controlled.

The CSO sorts through the diamonds, puts them in boxes and presents them to the 250 partners that they sell to. The price of the diamonds and quantity of diamonds are non-negotiable – it’s take it or leave it. Refuse your boxes and you’re out of the diamond industry.

For most of the 20th century, this system controlled 90% of the diamond trade and has been solely responsible for the inflated price of diamonds.

Now, let’s talk about the demand for diamond. We buy diamond because Mr. Gerold M. Lauck from N. W. Ayer & Son, an advertising agency in USA told to way back in 1938. Post the great depression, diamond sales were plummeting in the USA. Even Europe, on the verge of war was not looking very attractive to De Beers. And so, N. W Ayer & Son were brought in with the objective of positioning diamond as a status tool.

Movie idols were given diamonds to use as symbols of indestructible love. In addition, the agency suggested offering stories and society photographs to selected magazines and newspapers which reinforced the link between diamonds and romance. Stories stressed on the size of diamonds that celebrities presented to their loved ones, and photographs would conspicuously show the glittering stone on the hand of a well-known women.

Diamonds were everywhere. Fashion designers spoke on the radio about the “shifting trend towards wearing diamonds”. A robust campaign to sell diamonds aggressively was conceived. It was then that one of the most recognised slogans of 20th century pop-culture – “A Diamond is forever” was created.

This campaign still powers the demand for diamond today. What De Beers sold was the idea of eternal love using a stone.

So next time you head over to buy a ring, ask yourself this question – Are you really buying something that lasts forever? Or are you buying an idea sold by a smart advertising man?

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