The Diamond Deception

When we think of an engagement proposal, a vivid image comes to mind: a gleaming diamond ring, a heartfelt declaration of love, and an exquisite dinner at a luxurious restaurant. The diamond ring, in particular, has become synonymous with love and commitment. It’s a universal belief that the size of the diamond corresponds to the depth of one’s affection. But what if I told you that diamonds aren’t as rare as we’ve been led to believe? The truth is, selling a diamond reveals a different story—one where the stone’s true worth isn’t its scarcity but the result of cunning (and sometimes questionable) business practices and highly effective marketing campaigns. The captivating journey of how diamonds won over the hearts of people around the world begins here.

Our fascination with diamonds has ancient roots, dating back to around 700 or 800 BCE when the Dravidian people, still thriving in southern India and Sri Lanka today, stumbled upon these precious gems in Indian mines. It’s worth noting that the modern unit of measurement for diamonds, carats, originated from comparing gem weights to carob tree seeds.

The allure of diamonds stretches back over two and a half millennia, with mentions of these gems in stories involving historical figures like Alexander the Great and the legendary sailor Sinbad. Even Pliny the Elder, in his encyclopedic work “Natural History” published in 78 AD, made references to diamonds. They, along with spices, silk, and other exotic goods, were traded from the East to Europe, where they became highly prized commodities.

However, it’s important to remember that these ancient diamonds lacked the brilliance and beauty of their modern counterparts. They were often uncut, dull, and poorly polished. The meticulous processes of cutting and polishing, which give modern gemstones their dazzling allure, contribute significantly to their value.

Scarcity and Early Discoveries

The phrase “a knowledgeable eye could spot a diamond in the rough” was especially apt in the Indian subcontinent, where diamonds were indeed a rare find for many years. Although there were reports of diamonds discovered in Brazil’s jungles in the early 19th century, even when combined with India’s production, the annual global output of gem diamonds remained relatively modest. However, this narrative was on the brink of a significant transformation, and the year 1869 marked a pivotal turning point.

South Africa’s Sparkling Revolution

Prior to 1869, South Africa’s primary exports were rather unremarkable—sugar and wool. Europe had shown little interest in this region. Then, in a twist of fate, a young South African farmer, known as a Boer, stumbled upon a 22-carat diamond in a stream bed near the Vaal River in 1866. To put this in perspective, the diamond was roughly half the size of the famous Hope Diamond.

Just three years later, an 83-carat diamond was discovered by a young shepherd boy near the Orange River. The British promptly christened this impressive find the “Star of South Africa.” This particular diamond served as a catalyst for a gold rush in South Africa, which quickly gained momentum. It didn’t take long for prospectors to unearth the largest diamond deposit ever discovered, with one of the most prominent mines being the Kimberley Mine, often referred to as the “Big Hole.”

These mines began producing diamonds in quantities that had never been seen before. The prevailing belief was that more diamonds would be discovered, which led to a surge in land prices not just in the vicinity but throughout Africa. This surge eventually triggered a conflict involving European powers, particularly Britain, and the indigenous Boer population. This conflict, known as the First Anglo-Boer War, raged on for four months from 1880 to 1881. Although the British ultimately emerged as victors, the human cost of the war was higher than anyone had anticipated. Among the casualties were 408 British soldiers and 41 Boers. Tragically, even more lives would be lost when the second Anglo-Boer conflict erupted eighteen years later.

As the conflict in South Africa escalated and diamond production from the mines surged, British mine owners grew increasingly apprehensive. The value of their product was intrinsically tied to scarcity and demand, both of which were dwindling due to the abundance of diamonds and concerns about the violence in the region. By the late 1880s, many diamond mines teetered on the brink of closure, as diamonds were now viewed as semi-precious stones, akin to turquoise or topaz in contemporary terms.

Cecil Rhodes and the Birth of De Beers

At this critical juncture, Cecil Rhodes, a British entrepreneur, entered the scene. Rhodes began his career in 1869, precisely when the South African diamond rush was in full swing. Initially, he rented water pumps to miners, and with the profits from this venture, he started acquiring land claims from smaller mining companies. Rhodes made these acquisitions during a period when many smaller mining enterprises were struggling and looking to sell their assets. However, it was a specific land purchase that would forever etch his name into history. Ignoring the well-established Kimberly Mine, Rhodes bought the land that would later become the De Beers mine from two brothers, Johannes Nicolaas de Beer and Diederik Arnoldus, offering them a fair price for the property. Financial backing for Rhodes’s expanding empire came from the Rothschild family, or at least their bank. Whether Rhodes and the Rothschilds had direct knowledge of each other remains a subject of historical debate. As other South African mines leveled out, De Beers continued to flourish.

De Beers Consolidated Mines, Ltd.

With the steady decline in diamond prices in 1888, Cecil Rhodes and his De Beers mine found themselves among the last remaining mine owners. Instead of competing against each other, these remaining owners realized that the only way to salvage their businesses was to merge and form a single, colossal mining company. Their goal was to consolidate all resources—land, minerals, and production—under one entity, effectively creating a monopoly. Cecil Rhodes presided over De Beers Consolidated Mines, Ltd., and from that point on, the majority of South African mines were under the ownership of the De Beers Company.

Rhodes and De Beers astutely crafted the illusion of separate entities by forming “trading companies” and subsidiaries. In reality, all these entities were subsidiaries of the De Beers Group. Today, these tactics would be considered shell corporations, which are illegal in most countries. What De Beers essentially achieved was the establishment of a uniform, or “fixed,” diamond pricing throughout all their companies, with minimal variation. This gave the impression that the market determined the price, rendering the true forces of supply and demand irrelevant once De Beers controlled the entire supply. An Atlantic article published in 1982 succinctly declared that “De Beers proved to be the most successful cartel arrangement in the annals of modern commerce.”

Following Cecil Rhodes’s death in 1902, De Beers found itself in control of a staggering 90% of the world’s diamond production, extending its reach far beyond South Africa. However, after years of ruthless business practices, De Beers was about to face a challenge it couldn’t outmaneuver.