The new movie "Blood Diamond" has brought attention to the economics of diamonds.Q: How did diamonds, which are a relatively common mineral, become so expensive?
A: The supply of diamonds to the market is tightly controlled and restricted by a powerful diamond cartel: DeBeers Consolidated Mines Ltd. DeBeers is a South African firm with an office in London as its main distribution operation for selling rough stones, at non-negotiable prices to diamond wholesalers, only ten times a year.
Q: Which country has the world's largest supply of unpolished diamonds?
A: It's not Botswana, Russia, Canada or S. Africa which are the four largest diamond producers. The answer is: the UK. The world's largest stockpile of uncut diamonds is in the vault of the DeBeers office in central London, at 17 Charterhouse Street. DeBeers maintains high prices, while it successfully peddles the myth that supply is scarce with effective advertising and marketing. DeBeers alone spends $180 million yearly on advertising, and its clients (wholesalers) spend another $270 million.
There is a recent book about diamonds: " The Heartless Stone: A Journey Through the World of Diamonds, Deceit and Desire," by Tom Zoellner, here is the website for the book. Here is an excerpt that appeared in Time magazine:
"De Beers has managed the remarkable feat of operating a 17th century economic model in a 21st century world. Fluctuations of supply and demand are not tolerated. Three floors beneath the DeBeers office in London are a series of vaults that contain the world's largest stockpile of unpolished diamonds—the best estimates put it at half a billion dollars. To De Beers, they remain much more valuable right where they are. The continuing stability of the diamond industry depends on an artificial scarcity that De Beers has worked hard to create."
From an article in The Economist about diamonds:
"The diamond industry sells $60 billion of jewelery alone each year. For generations it has been run by De Beers as a cartel. The South African firm dominated the digging and trading of diamonds for most of the 20th century. The system for distributing diamonds established decades ago by De Beers is curious and anomalous—no other such market exists, nor would anything similar be tolerated in a serious industry. With its near monopoly as a trader of rough stones, De Beers has been able to maintain and increase the prices of diamonds by regulating their supply."
The diamond industry has to be one of the biggest marketing scams in the history of the world:
Step #1: Take a relatively common mineral of compressed carbon, artificially restrict the supply and distribution of that mineral by means of a powerful and ruthless cartel, and charge consumers an artifically high price, way above the true market price.
Step #2: Pursue an aggressive worldwide marketing campaign to deceive people into believing the myth that diamonds are somehow "special and scarce," when that specialness and scarceness are completely man-made and artificial, carefully created and orchestrated by the DeBeers diamond cartel.
There is a recent book about diamonds: " The Heartless Stone: A Journey Through the World of Diamonds, Deceit and Desire," by Tom Zoellner, here is the website for the book. Here is an excerpt that appeared in Time magazine:
"De Beers has managed the remarkable feat of operating a 17th century economic model in a 21st century world. Fluctuations of supply and demand are not tolerated. Three floors beneath the DeBeers office in London are a series of vaults that contain the world's largest stockpile of unpolished diamonds—the best estimates put it at half a billion dollars. To De Beers, they remain much more valuable right where they are. The continuing stability of the diamond industry depends on an artificial scarcity that De Beers has worked hard to create."
From an article in The Economist about diamonds:
"The diamond industry sells $60 billion of jewelery alone each year. For generations it has been run by De Beers as a cartel. The South African firm dominated the digging and trading of diamonds for most of the 20th century. The system for distributing diamonds established decades ago by De Beers is curious and anomalous—no other such market exists, nor would anything similar be tolerated in a serious industry. With its near monopoly as a trader of rough stones, De Beers has been able to maintain and increase the prices of diamonds by regulating their supply."
The diamond industry has to be one of the biggest marketing scams in the history of the world:
Step #1: Take a relatively common mineral of compressed carbon, artificially restrict the supply and distribution of that mineral by means of a powerful and ruthless cartel, and charge consumers an artifically high price, way above the true market price.
Step #2: Pursue an aggressive worldwide marketing campaign to deceive people into believing the myth that diamonds are somehow "special and scarce," when that specialness and scarceness are completely man-made and artificial, carefully created and orchestrated by the DeBeers diamond cartel.
Think about the advertising slogan "Diamonds are forever." Well, wouldn't a rock or a penny or a piece of steel be forever too? I have sharks' teeth that are 50 million years old, so I think sharks' teeth are probably forever too. And wouldn't a ruby or an emerald or a bar of gold be forever too? And why pay a lot of money for something that will last for a million years when you'll only be able to use it for maybe 50 years? Seems irrational.
What is the current biggest threat to the diamond cartel, and why is it possible that "cartels aren't forever?" Cultured, laboratory-grown diamonds, produced in diamond growth chambers by
Bottom Line: Don't support the diamond cartel, don't buy into the myth and scam of "false scarcity," and if you must buy diamonds, buy laboratory diamonds!
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