History of the diamond business
DeBeers controlled the diamond business for the better part of the 20th century.
A diamond and the lead in a lead pencil come from the same chemical element: carbon. The difference is that a diamond is the result of intense pressure and temperature. The mass of a diamond is measured in carats; a carat is the equivalent of 0.2 grams. A carat does not refer to the quality of the gem. The best way to select a gem is to evaluate cut, clarity, color and carat.
From a romance standpoint the tradition of giving a diamond engagement ring as a promise for marriage began in 1477 with Archduke Maximillian of Austria and Mary of Burgundy. At that time diamonds were looked upon as talismans, or charms, that could enhance the love between husband and wife. But in the 20th century this was the genius marketing campaign of the century.
The History of the Diamond Business and Trading
Diamond trade went on through most of Europe and the Middle East throughout the last 1000 years. The trade started in India, then moved to Brazil and more recently to South Africa. As diamond supplies dwindled in one area they moved to others.
The entire world's supply of diamonds came from India until the early part of the eighteenth century. The caravans of diamonds crossed Arabia and were traded to Jewish merchants in Egypt for gold and silver. The traders then resold them to Jewish merchants in the European cities of Venice, Lithuania and Frankfurt. As moneylenders and jewelers, the merchants assessed, repaired and sold gems that had been offered to them as collateral for loans.
Diamond mining occurred in India until it ran dry and in Brazil until 1725. But by 1800 a new source was found in South Africa.
The DeBeers Monopoly
During the 1800s in Europe, various diamond trading companies and jewelers were loosely working in tandem. These were Wernher, Beit&Company, Barnato Brothers, Mosenthal Sons&Company, A. Dunkelsbuhler, Joseph Brothers, I. Cohen & Company, Martin Lilienfeld & Company, F. F. Gervers, S. Neumann, and Feldheimer & Company.
These firms were usually interconnected by various family ties and all were owned by Jewish merchants. For a thousand years, diamonds had been almost entirely a Jewish business. Then came Cecil Rhodes.
The DeBeers Strategy
In April 1880, Cecil Rhodes consolidated diamond mines into the company that would become DeBeers. He formed a cartel with these merchants. Each was guaranteed a certain percentage of the diamonds pouring out of DeBeers' mines. In return they provided Rhodes with data about the market so he could ensure a steady, controlled supply.
As a result, for most of the 20th century DeBeers sold 85 to 90 percent of the diamonds mined worldwide. It was able to keep diamond prices stable by matching its supply to world demand. The sales and marketing arm of DeBeers is a company called the Diamond Trading Company.
A Diamond is Forever
One more trait that made the diamond business so successful was the marketing phrase that went with it, "a diamond is forever." The romance attached to owning a diamond was more than just ingenious, it offered a continual source of diamond buying for the betrothed. But there were a few rules that commercially made the system a cartel.
Buying diamonds from DeBeers involves buying a box of diamonds costing anywhere from 1 to 25 million dollars. There are a few rules that DeBeers developed over time to control the supply and price of the gems.
The DeBeer Marketing Rules
The Diamond Trading Company gets to decide who gets which diamonds. You can't haggle over price. The price for each of the 2,000 classifications of diamonds is fixed by De Beers. Then you have to take the entire box or none at all. And no client may resell the diamonds in his box in their uncut form without a special permission from DeBeers.
If you want to do business with DeBeers then you must supply it with whatever information it needs to assess the diamond market; a client must fill out a detailed questionnaire. Diamonds must never be sold into "weak hands" - this is done in order to maintain the illusion that diamonds never decrease in value. De Beers' clients cannot sell their diamonds to any wholesalers or retail jewelers who undercut prices at the retail level.
While the DeBeers syndicate controlled the diamond mining and distribution system, an alternative to the naturally produced diamond was developing. The cubic zirconia became a substitute for diamonds due to its high hardness and intrinsic beauty. Cubic zirconia is durable and inexpensive and now even comes in any color of the rainbow, making it even more desirable.
The DeBeers Monopoly Coming to an End
The history of the diamond business shows how the business was transformed from a loose confederation of traders into a tightly organized cartel that controlled supply and price. It did this for the better part of the 20th century.