How much is that diamond REALLY worth?

One of the most fascinating stories I've ever run across is that of the diamond business. It's not widely known, although it's received a bit more attention recently, but it's the story of market manipulation, artificial scarcity, and the most successful long-term marketing strategy in the history of the world.

The story starts in the mid-1800s. At the time, diamonds were incredibly rare gemstones, found only in a very few riverbeds in South Asia and South America. The stones were so rare, and so sought after by royalty, their value was immense. That all changed when, in 1870, enormous diamond deposits were found in South Africa. It became apparent quickly that diamonds are, in fact, semi-precious gemstones at best, and not anywhere near as rare as once believed. In fact, there are many, many other, less-valued gemstones which are far more rare than diamonds.

However, in one of the most astute moves ever made by the business community, the folks in the diamond trade of the late 1800s realized that collusion was the only way they were going to save their market. They formed a company to control the entire world's supply of diamonds and named it DeBeers. Yep, the same DeBeers who's name appears at the end of those "Diamonds are Forever" TV ads.

Which takes us to the second part of the story.

DeBeers controls the supply of diamonds, but in order to maintain the value of the stones, the cartel also had to control demand. Thus, the "Diamonds are Forever" campaign was born. To be successful in the long term, DeBeers had to create the belief that true love MUST be signified by a diamond. In this, they've been more successful than they ever could have dreamed. Do you know anyone who has been married without buying a diamond? I don't. It was never even a question in my relationship with Robynne, and it's not even a question in the VAST majority of relationships in the Western (and, increasingly, in the Eastern) world.

But even that wasn't really enough to ensure DeBeers' long-term viability. Sure, everyone buys a diamond. But, if everyone subsequently SOLD those diamonds, it would all be in vain for the cartel. So, the more subtle, but vitally important, part of the marketing plan was born. The notion that, once purchased, a diamond becomes a family heirloom, never to be resold, was presented to the market and, remarkably, wholeheartedly embraced. Ever try to sell a diamond? Me neither. Know anyone who has? Diamonds shouldn't depreciate, right? The whole idea is they're "Forever". But they do. You'll never resell a diamond back to a jeweler for the same price you paid. No one sells a diamond, but those who do are penalized by the industry.

The reality is, if the diamond market were free, diamonds would be worth very little. There are millions of carats of diamonds still in the ground, easily mineable. There are further millions of carats of diamonds in warehouses around the world, all controlled by DeBeers and released only as a trickle. And there are uncountable millions of carats of diamonds in the hands of consumers, which will never be parted with except upon the deathbed and within the family.

This story used to piss me off. Now, all I can do is shake my head in admiration. The folks at DeBeers are unqualified geniuses. In addition to their control of both sides of the diamond market for the past 135 years, they've also done a remarkable job of staying out of the public eye.

Quite a story.