Diamonds are common. They were not rare when created as gemstones for people over 5,000 years ago, and they still are not rare today, due to their geographic presence. The creation (a monumental achievement) of modern-day diamonds is a result of strategic actions taken by De Beers, the world’s leading diamond company, with unrivalled expertise in the exploration, mining and marketing of rough diamonds, by engineering customer demand, psychological manipulation, and creating aggressive and strategic market control tactics as a result of market manipulation.
In December 1888, the South African diamond industry was in a state of emergency due to the overproduction of diamonds. Mineowners were going bankrupt due to declining diamond prices because a new supply of diamonds had flooded into the marketplace, and diamond prices were in freefall. The diamond, once a uniquely coveted gemstone of emperors, had become a commodity and would soon be sold in the open market. One brilliant entrepreneur (British Financier), Cecil Rhodes, who had moved to South Africa for health reasons, perceived a major opportunity in this crisis and made what would ultimately become the boldest business move of the 19th century and perhaps beyond. Instead of reducing diamond production like all other diamond sellers were doing at the time, he aimed to consolidate control over the majority of diamond production, particularly in South Africa. They thought diamonds were precious. The word “precious” has several meanings. For something to be precious, it typically must also be considered “scarce.” Thus, if a business creates a perceived scarcity for its products, it has shop owners and/or dealers selling those products at inflated prices because they feel pressure from customers to have something they have never seen before. An example of this phenomenon is found in an essential question related to this topic. When a company with strong market power creates the illusion of scarcity for its products, allowing other businesses to profit from them, it will eventually find ways to keep that scarcity in place by any means necessary.
Diamonds are in ample quantities. Botswana alone has around 250 million carats and produces upwards of 20 million carats annually. (Statista) Their actual value is determined by how much a single company has controlled the supply of diamonds over the past century, not how rare they actually are; this singles out De Beers as the most prominent example of both the most talented and most disreputable aspects of capitalism throughout history.
The Excess Problem and Building the Market System
In 1867, diamonds were found in the Kimberley region of Kimberley in quantities that shocked the world. Before the discovery, global diamond production was only a few kilograms per year, and diamonds were considered extremely rare. Within just a few decades, however, the Kimberley mines had produced over 14 million carats of diamonds, with some estimates suggesting that by the 1880s, South Africa was supplying nearly 90% of the world’s diamonds. Suddenly, the world’s supply of diamonds had grown dramatically, and the very nature of diamond value was threatened by the increase in supply. In a free market system that is ruled by the economics of supply and demand, ceteris paribus, price declines when an abundant supply of a good enters the market. In the absence of industrial use for diamonds, at that point, their only basis for value rested on their rarity. If diamonds became common, they would have no value. Cecil Rhodes understood this and chose not to operate in an overcrowded market but to eliminate the market altogether. He did not merely establish a mining business; he established a cartel. He negotiated with the London-based Diamond Syndicate to reach a strategic alliance to purchase (i) a predetermined number of diamonds permanently for predetermined prices. This strategic alliance erased price fluctuation from the diamond market and replaced it with stability.
Instead of relying on natural competition, De Beers controlled diamond prices during trade downturns (1891-92) by limiting supplies. This involved managing the market with an overt hand rather than allowing market forces to set prices. By 1888, Rhodes had systematically acquired all the major diamond mine operations in Kimberley and consolidated them into one company, De Beers Consolidated Mines, Ltd., which was created to control diamond production and ensure continued scarcity.
The company went on to establish control of diamond production and distribution on a global scale through the formation of the Central Selling Organisation (CSO) in 1934 under the leadership of Y. Ernest Oppenheimer. The CSO provided a single channel for all rough diamonds entering the worldwide market and established prices for those diamonds. Only a select group of “sightholders” were allowed to buy diamonds, and they had to pay De Beers’ prices. Non-compliant independent producers would have no access to the CSO and would be targeted by De Beers flooding the market with competing diamonds until they broke down.
The maximum amount of time that De Beers had control over the market of rough diamond supply was an unacceptable monopoly (80%-90%). This was clearly an unreasonably large amount of time, according to economists.
According to the traditional view of monopoly produced by the economists Marshall, Stoneman, and Tirole, economists believe that a firm with monopoly power will produce less output than would allow them to produce a good at a lower price when compared to market supply. This is precisely what De Beers has done with its diamond operations, and he was able to do so with extreme precision. They would only release diamonds into the market from their previously mined diamonds and would go to great lengths and efforts to store the diamonds for long periods of time in order to provide an illusion that diamonds are scarce when, in fact, they are very common.
When countries released diamonds onto the market after their diamond reserves were used, and the country had been removed from the diamond market (e.g. Soviet Union, Australia in the 1980s, etc.), De Beers would either purchase diamonds from that country through long-term financing contracts or secure long-term purchasing agreements or strategic partnerships with producing countries.
When economies declined, such as during the Great Depression (when diamond demand eventually dropped), De Beers would purchase any additional diamonds available through second-hand markets in order to maintain diamond prices. This was textbook price-fixing: using the monopoly’s ability to control the supply of diamonds into the market to keep them priced far above what would be competitive.
While limiting supply allowed the company to maintain stable prices, the more significant aspect of De Beers’ innovation was creating consumer demand through psychological and cultural engineering. In its 1947 campaign, “A Diamond is Forever,” De Beers not only marketed its product but also redefined what diamonds mean socially by tying them to marriage and establishing them as permanent expressions of love. By associating diamonds with permanence and emotional worth, De Beers discouraged people from selling back their diamonds and created an environment where diamonds would not be judged based on their price like traditional items. By continuously advertising, placing their products in the media, and reinforcing the norm through culture, De Beers created the expectation that diamond rings would be worn to signify an engagement, thus elevating a luxury item to a social expectation. De Beers used behavioural principles such as the bandwagon effect and status signalling to ensure ongoing demand for its product was not because it was rare but due to socially established desirability. This caused huge deadweight losses to the economy, which is the loss of total welfare when mutually beneficial trades do not occur due to artificially high prices.
There was another more subtle form of economic coercion present. De Beers discouraged the development of a secondary resale market. By maintaining that there was no such thing as a secondary market for used diamonds, they effectively suppressed the resale value of new diamonds. Furthermore, they managed to spread the idea that diamonds are not to be resold, but rather that their value is not in dollars and cents. Rather, the value of a diamond lies in the emotions we attach to it. Therefore, their true value is irrelevant and cannot be quantified when sold again.
This was most likely the greatest (or rather, most creative) achievement of economic framing by a corporation in history, as they convinced consumers that their product had an infinite amount of emotional value, thereby making it impossible for them to find a “fair” resale value that overweighs its sentimental value, restricting them from taking it to the marketplace.
References:
- Bloom, S. (2022). Diamonds Aren’t Forever: The Story of De Beers. Sahil Bloom Substack. https://sahilbloom.substack.com/p/diamonds-arent-forever-the-story
- The Drinks Project. (2025). De Beers Became a Monopoly by Mastering Supply Control and Strategic Marketing. https://thedrinksproject.com/de-beers-became-a-monopoly-by/
- Ohio Link-Miami University. Creating an Engaging Tradition: N.W. Ayer & Son and De Beers. https://etd.ohiolink.edu/acprod/odb_etd/ws/send_file/send?accession=miami1281104096&disposition=inline
