The Truth About Diamonds


An expensive meal at a fancy restaurant, a declaration of romance, and a big, fat diamond ring- this is a pretty standard formula for an engagement proposal. After all, it has been ingrained in all of us that a diamond ring equals love and the bigger the diamond, the more love there must be. Well, believe it or not, diamonds really aren’t all that rare. In fact, the reason diamonds cost so much is more due to savvy (and sometimes unethical) business practices and incredibly successful advertising campaigns than the actual inherent value of the stone based on supply and demand, something anyone who has actually tried to sell a diamond quickly comes to realize. Here now is the story of how and why we all fell in love with diamonds.

The first known diamonds discovered by humans happened about 700 or 800 BCE in India by the Dravidian people (who are still found today in southern India and Sri Lanka). In fact, this is where we get the unit of weight for diamonds, carats, from; they would weigh the diamonds in relation to the seeds of carob tree.

Diamonds appear in ancient tales dating back to at least 2500 years ago, including ones involving Alexander the Great and Sinbad the Sailor. Pliny the Elder, in his 78 AD encyclopedia Natural History, also spoke of diamonds. Eastern traders brought them to Europe, along with silk, spices, and other exotic goods, and they were used as valuable trade items. But those ancient diamonds weren’t the stunning, brilliantly cut stones we know today. They were dirty, rarely cut or polished correctly, and were often quite dull. The dazzling stones we recognize from modern times are put through labor-intensive cutting and polishing (which is where much of the real, albeit relatively small, value of all but the largest of diamonds actually derives from). As Joan Dickinson’s book The Book of Diamonds puts it, diamonds could lie around unnoticed for decades in the ground of India before a “knowledgeable eye (could) spot a diamond in the rough.” Even with diamonds being found in the jungles of Brazil in the early 19th century, and including India’s contribution, the entire world production of gem diamonds was only a few pounds per year at this point. That all changed in 1869.

Prior to 1869, South Africa’s main exports were wool and sugar, nothing that was rare or native exclusive to the region. There was really nothing there prior that interested Europe. (Hence why “The Scramble for Africa,” the nickname for the European takeover of Africa, didn’t begin until 1881.)

So what changed? In 1866, a young Boer (a word referring to a South African farmer of Dutch or German descent) found a 22 carat diamond (for comparison, nearly half the size of the Hope Diamond) in a stream bed near Vaal River in modern-day South Africa. Three years later, an 83 carat diamond was found by a shepherd boy near the Orange River in South Africa. Nicknamed the “Star of South Africa,” the diamond touched off a rush in South Africa with the British leading the way. Soon after, four mines were dry-dug and the largest diamond deposit ever was found. The largest of these mines was called the Kimberley Mine, or the “Big Hole.”

Diamonds came out of those mines by the ton. The value of land in the region, and subsequently the rest of Africa due to the hope that there were more diamonds to be found, shot up. A titanic struggle-turned-war for land began between European powers, most notably Britain, and the Boer population who lived in the region. For four months between December 1880 and March 1881, the First Anglo-Boer War raged. The British would end up winning, but at a much higher cost of manpower than originally thought. 408 British soldiers were killed, while only 41 Boers. 18 years later, the second Anglo-Boer war would commence with even greater casualties.

Meanwhile, the fighting and the sheer amount of diamonds coming out of the South African mines were making the British owners of the mines quite nervous. The value of their product depended on scarcity and demand. With too many diamonds and a market fearful of the violence, the demand was dropping and value of diamonds went down. In the late 1880s, diamonds were essentially a semiprecious stone (equivalent to today’s turquoise or topaz) and many of the mines were at-risk of closing.

Enter British native Cecil Rhodes who got his start renting water pumps to miners in 1869 at the beginning of the South African diamond rush. From the money earned, he bought up claims of land from smaller mining operations. When many small operations were closing and selling land due to the over-saturation of diamonds in the market, Rhodes was buying. Ignoring the more-established Kimberly Mine, he made the purchase that would send him into history. The old De Beer mine was owned by two Boer brothers, Johannes Nicolaas de Beer and Diederik Arnoldus. Rhodes bought it off them for, at the time, a reasonable price. As Rhodes’ empire continued to grow, the immensely wealthy Rothschild Family (or at least, their bank) providing some financial backing (it is unclear how Rhodes and the Rothschild knew each other), and as every other South African mine leveled off, the De Beers did not.

In 1888, as diamond prices continued to fall, there were only a few mine owners left, including Rhodes and his De Beers mine. The remaining mine owners decided that the only way their industry would survive was, instead of competing with one another, to consolidate and form one giant mining company. The intention was to create a monopoly in the industry, centering all the production, mining, and lands in the hands of one corporation.  And that corporation was De Beers Consolidated Mines, Ltd headed up by Cecil Rhodes. From that point forward, the De Beers Company was nearly the sole owner of every single South African mine.

Rhodes and De Beers created individual subsidiaries and “trading companies,” to make it look like these were different companies operating independently. They were not and all were part of the parent De Beers Company. Today, these would be called shell corporations and would be illegal in most regions of the world. Essentially, what De Beers was able to do was to set one standard, or “fixed,” diamond price, with minimal fluctuation between their subsidiaries, and make it look like the market set the price. Now, the actual supply and demand value didn’t matter anymore because De Beers controlled all of the supply. As a 1982 The Atlantic article put it, “De Beers proved to be the most successful cartel arrangement in the annals of modern commerce.”

Upon Cecil Rhodes’ death in 1902, De Beers owned ninety percent of the world’s (not just South Africa’s) diamond production, but after years of ruthless business practices, his company was about to be outsmarted.

The Premier mine (later called the Cullinan mine, after the town it was located in) was one of the only mines not owned by De Beers, despite overtures from the company about buying it. The owners didn’t want to contribute to the De Beers monopoly, so instead they sold to independent dealers, the Oppenheimer brothers. In 1905, the largest rough diamond ever found was in the Premier mine, weighing in at an absurd 3,106 carats. Now, the Oppenheimer brothers, particularly Ernest Oppenheimer, were in business.

Ernest Oppenheimer knew that, while his own Anglo American Corporation was doing well, no one would be able to defeat De Beers at this time. So, he took the expression “if you can’t beat them, join them” seriously. Using his newfound wealth, he bought enough shares of De Beers to land himself on the board of the company. By 1926, he was the second largest shareholder in the company, behind only Solly Joel. As it turned out, Joel and Oppenheimer were friends and had already conceived a plan where Oppenheimer would become chairman of the board. Oppenheimer did exactly this and renamed the company the Diamond Corporation. The Oppenheimers would hold control of the company until 2011.

In 1938, the diamond industry was again in decline, thanks to the discovery of mines in Australia, Siberia, and Western Africa and the Great Depression reducing sales, which again saturated the market. So, Ernest sent his son, Harry, to New York City to meet with the ad agency N.W. Ayer, which was the same agency that helped their financial backer Morgan Bank. Together, they realized that the United States was a significantly under-tapped market for diamonds. They just need to figure out a way to convince Americans to buy their product. They did just that by using the happiest and, perhaps, occasionally most irrational of human emotions – love.

Using newspapers, magazines, the new medium of movies, and even a series of lectures at high schools across the nation centered around diamond engagement rings, they constructed the illusion that diamonds equaled love, with a bigger (and more expensive) diamond meaning more love. “A Diamond is Forever” was shown in ads depicting young lovers getting married or on their honeymoon. (In truth, diamonds are easily shattered, burnt and turned into carbon dioxide with the help of an abundant supply of oxygen, chipped, etc.) These ads appeared everywhere, often using big name movie actors to foster this connection. And it worked – by 1944, the sale of diamonds had increased by 55 percent in the United States from just a few years before and were now inexorably tied to love and marriage, as well as being seen as a highly valuable item that would last forever.

This idea of diamonds being “forever” and to be passed on from generation to generation was a particularly important notion.  You see, as more and more diamonds were held by individuals, eventually there would be so many out there that if people started trying to sell them, the reality of the value would be discovered and the price of cut diamonds would also ultimately no longer be controllable by De Beers, something not lost on the company. Thus, diamonds not only had to be forever held by the individual, but the idea of buying a used diamond to show affection had to be firmly taboo.  Harry Oppenheimer commented on all this in 1971:

A degree of control is necessary for the well-being of the industry, not because production is excessive or demand is falling, but simply because wide fluctuations in price, which have, rightly or wrongly, been accepted as normal in the case of most raw materials, would be destructive of public confidence in the case of a pure luxury such as gem diamonds, of which large stocks are held in the form of jewelry by the general public.

In any event, thanks to a virtual monopoly and perhaps the most effective ad blitz of all time, diamonds were here to stay and, again, De Beers could set its price, no matter if supply was high or low. In fact, the higher the price, the more love one was now demonstrating.  De Beers repeated these types of campaigns throughout the developed world with resounding success.  For instance, in Japan in 1967, diamond engagement rings were given only 5% of the time. Within a decade, thanks to some savvy advertising, more than half of all engagement rings in Japan had diamonds on them, with that number rising steadily ever since.

Today, thanks to a series of very recent events, including several lawsuits and something in the way of a revolt by several diamond supplying nations against De Beers, De Beers no longer has a stranglehold on the diamond market, but the idea that diamonds are the traditional way to demonstrate true love and that one should spend two months’ salary on a diamond engagement ring (an idea embedded into popular culture via an old diamond ad campaign, first as one month’s salary, and later increased to two with the slogan “How else could two-months’ salary last forever?”) has kept the diamond industry remarkably profitable. After all, even for those who know all this about diamonds, thanks to popular perception, giving the gift of a diamond is still the defacto way to convert money into a demonstration of love, with no immediate end in sight.

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Bonus Facts:

  • In the 1970s, De Beers had a major problem on their hands.  Their ad campaigns promoting high priced small diamonds had been too successful, both getting more people to buy smaller diamonds and at the same time raising the price of the bigger diamonds too much for most to afford. Thus, for a very brief time there really was a problem meeting the demand for small diamonds, causing them to have to discount larger diamonds considerably to encourage people to buy them instead. However, as supplies continued to increase, this problem was quickly resolved.
  • It has been suggested that one of the reasons the De Beers ad campaigns were so successful in getting people to not only give engagement rings, but diamond ones, had a lot to do with changing laws at the same time De Beers was unleashing their media blitz.  You see, in the early 20th century, for most women, their only choice in securing their financial well-being in a societally acceptable manner was through a man.  And to get a good man, one must have an untarnished reputation.  The problem was that once an engagement was declared, approximately half of engaged women would then go ahead and let their fiancé have sex with them. (Kinsey, 1948a: 336, 1948b: 364)  If the fiancé then broke off the engagement, the woman now not only had the scandal of a broken engagement following her, but potentially also had the fact that she was no longer a virgin hanging over her head.  This double whammy could quite literally destroy any good prospects the woman had.  As such, there were laws on the books to protect the woman, allowing her to sue for damages resulting from a broken engagement, and more so if the broken engagement included the man previously taking the woman’s virginity.  However, during the 1930s, these laws started being repealed or the damages a woman was entitled to collect became severely limited, even in cases where the woman would reveal that the man who had broken the engagement had also slept with her.  Because the diamond engagement ring was perceived as highly valuable thanks to the ad-campaigns around this same period, it allowed the woman to collect what she thought was a valuable item as a form of insurance for the engagement, now that she could no longer collect much (or anything at all) in the way of damages for a broken engagement.
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  • Those guys were really clever but seriously twisted. Thanks for sharing this with us. I will never ever buy a diamond in my life: that’s for sure.