Why Are Diamonds so Expensive?

From Pliny the Elder to Marilyn Monroe, the wild history of the world’s most pricey gemstone.

Why Are Diamonds so Expensive?

If you’ve shopped for expensive jewelry, you’ve probably contemplated buying something with diamonds. And you may have balked at the price. An average American spends $6,351 on a diamond engagement ring, according to one survey.

But why are diamonds so expensive? Many people point to market manipulation — and that’s certainly true — but you can’t simply restrict supply and demand to make something sell for thousands of dollars when it has no intrinsic, or even resale, value.

And while diamonds have had a long history of being associated with the crowns of kings and queens because of their once-perceived ultra-rarity, ironically, it wouldn’t be until the 19th century, when it was discovered that diamonds are plentiful, that the mineral would become the most expensive gemstone in the world.

Diamonds Have Been Prized Nearly Forever

In 77 A.D., Pliny the Elder in his histories wrote that “the substance that possess the greatest value, not only among the precious stones, but of all human possessions, is adamas, a mineral which, for a long time was known to kings only, and to very few of them.”

Adamas, meaning invulnerable in Latin, is where we get the name diamond.

Diamonds had been discovered long before that, with the first descriptions of the gemstone emerging in India during the fourth century B.C. For centuries they were believed to be found only in India and were believed to be extremely rare.

And that supposed-rarity made diamonds a treasure.

Diamonds Were Marks of Royalty

By the 13th century, Louis IX of France loved diamonds so much he would have heavy, diamond-encrusted outfits made specifically for him. Louis IX only wanted royalty associated with diamonds — he even went so far as to make a sumptuary law prohibiting anyone else from wearing the stone, just in case they could afford it.

But it Only Popularized the Stone

By the 1600s, Louis XIV’s penchant for diamonds and new types of diamond-studded jewelry spread to the regular public.

Joan DeJean in “The Essence of Style: How the French Invented High Fashion, Fine Food, Chic Cafes, Style, Sophistication and Glamour” writes, “for the first time, shopping for fine jewelry became an integral part of the Parisian experience” in the 17th century.

But the general public still wasn’t buying diamonds. “Diamond ownership remained very much an aristocratic frill” until the late 19th and early 20th century, writes Stanford History professor Robert Proctor in his research paper “Anti-Agate: The Great Diamond Hoax and the Semiprecious Stone Scam.”

Still, though, by the 18th century, diamonds were so coveted by the elite that King George IV took out, on loan, 12,314 of diamonds for his own personal crown at his coronation ceremony. The amount? Sixty-five thousand pounds — more than $10 million U.S. today — at 15 percent interest.

He couldn’t hope to pay the loan back, and despite pleas to Parliament to just go ahead and buy him the crown, he was eventually forced to unset the crown and return the jewels.

South African Diamonds Changed Everything

Up until the 19th century, India had the lockdown on the diamond trade — we just didn’t know they could be mined elsewhere. Then in 1866, a 15-year-old boy picked up a 22-carat diamond — now known as the Eureka Diamond — by the Orange River, located near Hopetown, South Africa.

In 1861, an English prospector discovered massive diamond mines in Kimberley, the capital city of Northern Cape. It would change everything.

“Democratizing” Diamonds

Right after the Kimberley mines were discovered, a glut of diamonds from South Africa flooded the world market, causing diamond prices to fluctuate — even plummeting to “a few shillings per carat,” according to Proctor.

Diamonds were “‘democratized’ to a certain extent,” according to Proctor. If diamonds were to go back to being coveted for their rarity — a belief that had just been debunked — something would have to change, or else diamonds would become basically worthless.

Enter Cecil Rhodes.

De Beers and Cecil Rhodes

Rhodes was a British an imperialist, politician, and mining magnate; he served as the Prime Minister of Cape Colony from 1890 to 1896. He was also a racist who believed Anglo Saxons were the “master race” and may have helped pave the way for apartheid.

Rhodes formed the diamond company De Beers in 1888. He knew the only way for diamonds to retain their value was a strict supply control, so he bought out larger and larger diamond mine claims, essentially stomping out the competition. The company employed draconian measures like hiring convicts at a fraction of the cost of other employees, housing its 10,000-strong black miners inside prison-esque barracks, and even forcing workers to ingest laxatives so their excrement could be searched for swallowed diamonds, according to “Glitter & Greed: The Secret World of the Diamond Cartel” by Janine Farrell-Robert.

De Beers controlled almost all the world’s diamond trade — and through the oncoming decades, would continue to do so. It wouldn’t be until the 1980s, when De Beers’ market share was near 90 percent, that its stranglehold would weaken.

The Great Depression and the Rise of Diamond Advertising

Up until the 1930s, diamonds weren’t tied to the image of forever-lasting love and a multifaceted way to show off wealth. Ironically, it would be because of the Great Depression that diamond prices would later skyrocket.

In 1929, a man named Harry Frederick Oppenheimer controlled De Beers (his father, Ernest Oppenheimer, had taken control of the company from Rhodes). When the Great Depression hit, the diamond market was in trouble. Knowing that diamonds wouldn’t be selling nearly as much, Oppenheimer drastically restricted the number of diamonds being produced. The diamond trade declined worldwide, and by 1938, Oppenheimer needed some help. So, he went to N. W. Ayer, an advertising agency in New York City, and hired them to put some polish on the diamond’s out-of-vogue image.

And, oh boy, the lengths they took to do so.

Courting Hollywood

To get diamonds back to their royal roots, Ayer targeted the new royal family: Hollywood. Ad men tried to weasel diamonds into the scripts themselves and decorated actresses in diamonds.

According to Proctor: “In 1941, for example, Paramount Pictures was cajoled into changing the title of its ‘Diamonds Are Dangerous’ to ‘Adventures in Diamonds’ — following a De Beers promise to advertise the film in jewelry shops across the country.”

So, too, did the ad agency attack the print market: “By 1940, the Ayer agency had placed 3,500 diamond movie stories and 16,500 diamond news stories in magazines such as Brides, Reader’s Digest, and the New York Evening News,” writes Proctor.

Making Big Money Off World War II

But the worst offense may have been war profiteering. When America entered World War II, there wasn’t much reason for people at home to buy diamonds — most spending money went toward American-made goods to help the war effort. And you know what doesn’t help the war effort? Buying diamonds from De Beers. You know what De Beers and its ad agency said would help the war effort? Buying diamonds from De Beers.

Ayer ran advertisements with titles like “Diamonds and the Call to Arms,” “Fighting Diamonds,” and “How Diamonds Spark the Wings of War and Peace.” Worse still, De Beers had no need to mine more diamonds during this time, as it had already produced any kind of useful, practical diamonds that could be sent overseas.

“Its vaults were full,” writes Farrell-Robert. “It had closed the mines that produced both gem diamonds and the diamonds most needed for the war effort, keeping open only the Congo mines that produced at the cheapest cost the poorest quality industrial diamonds.”

While the Justice Department quickly investigated De Beers for war profiteering, it didn’t matter. According to Farrell-Robert, the company had poured $500,000 into advertising each year during WWII and “declared a 100 percent increase in dividends in 1940 and 1941.”

Advertising in Schools

Another campaign switched gears from the more indirect approach of diamond-flashing movie stars and the traditional campaigns of print and television to infiltrating the American public-school system itself. Ad men targeted, and then visited, girls’ schools throughout the United States.

“They addressed school assemblies, spreading the message that a girl is not truly engaged until she wears a diamond. They justified this by quoting an invented ‘ancient history’ for the diamond engagement ring,” writes Farrell-Robert.

What better way to create value than to invent it and teach it right before chemistry?

Diamonds are Forever

In 1948, an Ayer copywriter penned one of the most famous slogans in advertising history: “Diamonds are Forever.” Alongside that, was another slogan: “Diamonds are a girl’s best friend.”

Back in the 1930s, De Beers had run a campaign that advocated men spend one month’s salary on their engagement ring (it’s unclear if this was Ayer or not). But by the 1980s, De Beers would run another, similar campaign — only this time, a proper diamond engagement ring should cost at least two full months’ worth of work. Together, the two campaigns were an astonishing success.

“These two achievements — making the diamond ring an essential part of getting married and dictating how much a man should pay — make it one of the most successful bits of marketing ever undertaken,” Dr. TC Melewar, professor of marketing and strategy at Middlesex University, told the BBC.

The onslaught of marketing, from the memorable slogans and getting Hollywood involved (Marilyn Monroe sang “Diamonds Are a Girl’s Best Friend” in 1953’s “Gentlemen Prefer Blondes”) made diamonds a major element of American wedding culture.

According to Proctor, “Whereas early in the century almost no one in the United States owned a diamond engagement ring, by 1950 about half of all brides would receive one. By 1960 the figure had risen to nearly 80 percent. Even working-class brides were expected to be able to display a diamond.”

Restricting Resale Value

“Diamonds Are Forever” wasn’t a slogan to just make you buy diamonds. It’s also designed to make you keep them. If anyone could make their money back — or even profit from — reselling their diamonds, the industry wouldn’t be able to demand top dollar.

Edward Jay Epstein, writing an often-referenced 1982 piece for The Atlantic, found that selling a diamond proved extraordinarily difficult since “the buyer, not the seller, determined the price.” People who spent thousands on diamond jewelry looking to resell them at jewelers were given fractions of the purchase price, while some shops would only trade on consignment or had a store policy against reselling diamonds. Even diamonds bought and kept during periods of high inflation barely gained value.

Epstein said the lowest end of resale value was around 10 percent; a more recent story by Marketplace says you may get as low as 20 percent.

The Newest Move? Downplaying Lab-Grown Diamonds.

But it’s 2018, and now lab-grown diamonds are encroaching the market. Surely this will eliminate, or at least weaken, the diamond trade?

Not if De Beers has its way. The company is already trying to undercut the competition. It recently announced that it would make its own lab-grown diamonds and sell them at a fraction of the cost. According to Bloomberg, a lab-made 1-carat diamond retails for $4,000. De Beers’ man-made 1-carat diamond will sell for around $800 a carat.

And here’s why: “Lab grown are not special, they’re not real, they’re not unique. You can make exactly the same one again and again,” De Beers CEO Bruce Cleaver told Bloomberg. De Beers will also not grade their lab-grown diamonds because they “don’t think they deserve” it.

In other words: real diamonds are unique and special — just like your relationship. Those lab made diamonds? They’re factory-produced, common, boring — and it looks like De Beers is ready to flood the market with them.

Diamonds will forever stay expensive as long as people pay for them — and that’s not changing anytime soon.

Worldwide diamond sales hit a record $82 billion in 2017.