You will not often find me posting a link to a twenty-four year old magazine article. I'm doing so today because
I just read the article, and found it fascinating and completely timely. It's about the world market for diamonds, how it was created from basically nothing in the 1930s, how large and tiny karat diamonds have been marketed over time, how publicity and advertising has created and shaped the demand for diamonds, how De Beers had kept their stranglehold on the world's diamond sales, and more. A few quotes, and keep in mind that this was written in 1982; a fact both to factor in when you see dates, and to marvel at when you see how easily this article could have been in today's paper.
The diamond invention -- the creation of the idea that diamonds are rare and valuable, and are essential signs of esteem -- is a relatively recent development in the history of the diamond trade. Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value -- and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious gems...
The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever -- "forever" in the sense that they should never be resold.
...
Until the mid-1960s, Japanese parents arranged marriages for their children through trusted intermediaries. The ceremony was consummated, according to Shinto law, by the bride and groom drinking rice wine from the same wooden bowl. There was no tradition of romance, courtship, seduction, or prenuptial love in Japan; and none that required the gift of a diamond engagement ring... The campaign was remarkably successful. Until 1959, the importation of diamonds had not even been permitted by the postwar Japanese government. When the campaign began, in 1967, not quite 5 percent of engaged Japanese women received a diamond engagement ring. By 1972, the proportion had risen to 27 percent. By 1978, half of all Japanese women who were married wore a diamond; by 1981, some 60 percent of Japanese brides wore diamonds. In a mere fourteen years, the 1,500-year Japanese tradition had been radically revised.
...
Women were not totally surprised by diamond gifts: some 84 percent of the men in the study "knew somehow" that the women wanted diamond jewelry. The study suggested a two-step "gift-process continuum": first, "the man 'learns' diamonds are OK" fom the woman; then, "at some later point in time, he makes the diamond purchase decision" to surprise the woman.
Through a series of "projective" psychological questions, meant "to draw out a respondent's innermost feelings about diamond jewelry," the study attempted to examine further the semi-passive role played by women in receiving diamonds. The male-female roles seemed to resemble closely the sex relations in a Victorian novel. "Man plays the dominant, active role in the gift process. Woman's role is more subtle, more oblique, more enigmatic...." The woman seemed to believe there was something improper about receiving a diamond gift. Women spoke in interviews about large diamonds as "flashy, gaudy, overdone" and otherwise inappropriate. Yet the study found that "Buried in the negative attitudes ... lies what is probably the primary driving force for acquiring them. Diamonds are a traditional and conspicuous signal of achievement, status and success." It noted, for example, "A woman can easily feel that diamonds are 'vulgar' and still be highly enthusiastic about receiving diamond jewelry." The element of surprise, even if it is feigned, plays the same role of accommodating dissonance in accepting a diamond gift as it does in prime sexual seductions: it permits the woman to pretend that she has not actively participated in the decision. She thus retains both her innocence, and the diamond.
...
It is conservatively estimated that the public holds more than 500 million carats of gem diamonds, which is more than fifty times the number of gem diamonds produced by the diamond cartel in any given year. Since the quantity of diamonds needed for engagement rings and other jewelry each year is satisfied by the production from the world's mines, this half-billion-carat supply of diamonds must be prevented from ever being put on the market. The moment a significant portion of the public begins selling diamonds from this inventory, the price of diamonds cannot be sustained. For the diamond invention to survive, the public must be inhibited from ever parting with its diamonds.
Retail jewelers, especially the prestigious Fifth Avenue stores, prefer not to buy back diamonds from customers, because the offer they would make would most likely be considered ridiculously low. The "keystone," or markup, on a diamond and its setting may range from 100 to 200 percent, depending on the policy of the store; if it bought diamonds back from customers, it would have to buy them back at wholesale prices. Most jewelers would prefer not to make a customer an offer that might be deemed insulting and also might undercut the widely held notion that diamonds go up in value... For example, Brod estimates that a half-carat diamond ring, which might cost $2,000 at a retail jewelry store, could be sold for only $600 at Empire.
The article ends with some news about the recent discovery of vast diamond supplies in Australia, and floats the possiblity of DeBeers' century-old cartel finally crumbling as diamonds flood the market and send prices tumbling. This event would be met with horror by diamond merchants, since as the article explains, diamonds only remain expensive since people believe they are valuable and rare. People hold onto them with the dream that they will appreciate in value, when this is simply untrue for 99.9% of diamonds. And if prices drop people might not want to keep buying diamonds, and might start selling off their unworn diamonds, which would cause further price drops, and so the dominos would fall.
Since the article was written in 1982, and diamonds are still popular, expensive, and synonymous with romantic love, it's obvious that DeBeers somehow managed to stave off the sort of price correction that all other commodities regularly undergo. How they managed that and where all the diamonds are going is a good question, but unfortunately there's no update to the article. Perhaps more markets have been colonized? As of 1982, about 95% of the diamonds in the world were sold in the US and Japan, with Europe and the rest of Asia and South America not yet buying into the concept of that one type of stone being so much better/more valuable than all the rest. Has DeBeers' advertising taken hold since then, and turned diamonds into the
de rigueur engagement ring everywhere on earth?
I also enjoyed the bits in the article about wholesale prices and diamond thieves. A partial quote:
When thieves bring diamonds to underworld "fences," they usually get only a pittance for them. In 1979, for example, New York City police recovered stolen diamonds with an insured value of $50,000 which had been sold to a 'fence' for only $200. According to the assistant district attorney who handled the case, the fence was unable to dispose of the diamonds on 47th Street, and he was eventually turned in by one of the diamond dealers he contacted.
Since only the huge, multi-karat stones increase in price over time, and since those are all well known and essentially un-fencable if stolen, why would anyone steal diamonds? Sure, it's better than stealing nothing, and they're quite portable for the potential value, but who are you going to sell them to? The only people who buy diamonds in bulk are part of the DeBeers pipeline, and they've all got their established suppliers. A local diamond store isn't going to buy a pile of rocks, and even if they did, they don't pay cash for their merchandise; they take them on consingment and pay the supplier once they make a sale. Besides, since retail markup is 100-200%, you'd be lucky to get $200 for a $1000 diamond, and only that much once they sell the thing. The only people who pay appraised prices for diamonds are customers, and they're not about to pay that premium to some guy selling a black velvet pouch full of rocks out of the back of his station wagon. You'd get more mileage out of stolen diamonds by paying to have them mounted and giving them to your girlfriend/wife, thus at least sparing yourself the scalping you would otherwise take in a jewelry store.
I'm not serious, of course. Thieves in black ninja outfits swiping huge piles of glittering rocks is such a good cinematic image that it will never fade, and I would be surprised if DeBeers lets it fade. Their advertising agency in the US was one of the first to see the value in planting diamonds on the fingers of movie stars in the early days of movies and television, and since images of diamond thieves fuel the illusion that diamonds are inherently valuable and desireable, they probably do the industry as much or more good than those romantic commercials with the
creepy shadow people.
We're a bit unfair to diamonds too; it's not like we expect flowers or clothing or chocolate or other romantic gifts to be saved for twenty years and still have value. And those other gifts certainly wouldn't be something she could wear/use every day for twenty years. Just accept them as something shiny that costs a lot more than it should, and if you really hate to pay new prices, go to a pawn shop and see what they've got for a lot less than half what it would cost new.
The great irony of all this is that even though I think diamonds are a ridiculous scam, and I know they're worthless as an investment, and I own none and can't imagine ever wanting to wear one... I still want to give Malaya one far larger than I can reasonable afford when I ask her to marry me. And that's despite my frugal nature, and the fact that a $5k solitare platinum ring might be worth $1500, at best, the minute I leave Tiffany's with it. Such is the power of 70 years of well-targeted marketing. Hell, I'd probably be down for buying her necklaces and bracelets and such too, on birthdays and such.
Labels: diamonds
