diamond delusion

Picture yourself as Maximilian the First - future Holy Roman Emperor - on his quest to woo Mary of Burgundy, the heiress to the Burgundian lands. Mary is a noble aristocrat with a predilection for riches and jewellery. You, however, are broke; and a noblewoman of such status, modestly nicknamed “the Rich”, will hardly be impressed by common silver, gold or gemstones. In your lustful and desperate plight you travel the lands and the kind peasants give you (entirely voluntarily) whatever gold and silver they can afford [1]. In the end, you trade it all in for a diamond, the king of all gemstones, to be forged into a ring of engagement for the ages. You marry Mary, merge the houses of Habsburg and Burgundy for a historic alliance, and cement diamond ring betrothals as the ultimate manifestation of commitment for centuries to come.This is the story of diamond engagement rings - at least how the diamond industry tells it. In thetrue but unsexy version, the marriage only lasts 5 years and it is unclear where the ring came from to begin with. But jewellery retailers around the globe seem to adore the Mary of Burgundy spun sugar romance saga and have decided to bestow upon us an excess of fake diamond ring history in blogpost form. To understand why, a quick chat about theories of value is unavoidable [2].

value in the eye of the beholder

Adam Smith, known for publishing a widely read Haiku collection in 1776, was already puzzled by the so-called diamond-water paradox back in the day. The paradox decries the absurdity of paying exorbitant sums of money for a diamond - a rather useless purchase compared to other, cheaper things like water. He observes:

The things which have the greatest value in use have frequently little or no value in exchange; on the contrary, those which have the greatest value in exchange have frequently little or no value in use.He goes on to define theexchange valueof an object as the cost of the labour that went into its production:

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.This is one of the first articulations of theLabour Theory of Value. Smith proposes that any commodity has anatural price- the price necessary to cover all the costs of the supplier such as rent, wages, and other costs of production. Competition will eventually push themarket price (exchange value)of a commodity towards thenatural price.

Unfortunately for Adam, themarket priceof a one-carat diamond will range from$1500 to 11 000depending on its cut, colour and clarity while the actual production cost (natural price) of such a diamond has been estimated to beas low as $30. Either competition is doing a really bad job at pushing the market price down [3], or a different conception of value is necessary to explain diamond prices.

Enter theSubjective Theory of Value. It states:

Assuming all trades to be voluntary, an exchange comes about when both parties perceive the good they give to be of lower value than the good they receive.The value of one’s possession thus hinges entirely on one’s subjective valuation thereof.The price of a diamond, so the theory, has little to do with its usefulness or the cost of its production. All that matters is how much it is valued by the acquirer, the consumer. This is the understanding of value that orthodox economics endorses: We all have tastes and desires anddemandis our willingness and ability to put our desires into effect. The price of a commodity is then fixed by the laws of supply and demand.

tell me what I want what I really really want

There is just one small problem with the subjective theory of value. We are assuming wants and desires to be relatively constant. What if they could be manipulated? Would that mess with our conception of value? Do you believe in the existence of dark, arcane forces that conjure up cravings and desires for goods and services that we, the consumer, have literally zero use for? Let’s talk about marketing. Because with marketing we can meddle with desires and manipulate demand.

The diamond industry understands this well, and this is what nets us cute romantic tales about the origin of diamond engagement rings: Consider De Beers, a South African diamond cartel that has historically controlled up to 90% of the global trade of rough diamonds. From the get-go, their advertisers understood that they were trying to market a product with very little use value:

"We are dealing with a problem in mass psychology. We seek to ... strengthen the tradition of the diamond engagement ring -- to make it a psychological necessity capable of competing successfully at the retail level with utility goods and services...."

De Beers bombarded the American and global public with marketing campaigns from the late 1930s onward. They organised lectures at high schools to preach the importance of commitment and diamonds’ association therewith. Celebrities were given diamonds to use as “symbols of indestructible love”. The slogan “A Diamond is Forever”, commissioned in 1947, probably inspired the James Bond book, film and song of the same name. De Beers succeeded in cementing the idea that love, romance, commitment, and seduction can be bought with a 1.4-carat De Beers™ Diamond Engagement Ring.

What’s more impressive is that this alteration of culture and social scripts was not a one-time heist but is a still-ongoing process. The behemoth’s meaty marketing fingers have been massaging our socio-cultural norms for almost an entire century now. A necessary process to keep demand constant despite ever-changing supply conditions:

In the mid ’60s, new diamond mines were discovered in Siberia. De Beers feared that the small diamonds mined there would undercut the prices of larger diamonds mined by De Beers in Africa. Quickly a deal was struck with the Soviets to control the new influx of diamonds. The new mines joined the cartel which meant that the smaller Siberian gemstones were now De Beers’ responsibility.

Up to that point, De Beers had popularised a clear message: The bigger the diamond, the better. Previous campaigns had equated larger-sized diamonds with more love and more commitment. A complete 180 on this message was necessary. The advertisers were instructed to highlight the importance of a diamond's cut, colour and clarity rather than its size. It had to be clear that even a small diamond bears emotional significance. The campaigns were a success. The average size of diamonds sold fell considerably until it reached .28 of a carat in 1976 - roughly the average size of the Soviet diamonds.

If anything, the manipulation of public perception had gone a little too well. At times, the demand for small diamonds outpaced supply, forcing De Beers to backpedal a bit and nudge demand in the direction of larger diamonds, like in this ad:

[source] [4]

blood & hound industry

But apart from small mishaps, we have been successfully pavlov’ed into craving what De Beers has to offer.Systematic investigationof the beliefs and attitudes towards diamonds in the American population reveals “a mix of blissful ignorance, deeply entrenched symbolism, and culturally constructed fantasies”.

It’s a shame that these fantasies benefit an industry plagued by violence and exploitation. While acertification schemeattempts to curb the trade of “conflict diamonds”, i.e. diamonds used to finance armed groups, it has been criticised to be nothing more than acover story. Abusive governments and their armed forces are still free tocoerce and abuse mine workersand sell on the international market.  Like in Zimbabwe, where diamond mine employees have usedhorrid methodsto deter local residents from mining diamonds: “The guards handcuffed me and my colleagues and ordered us to sit down. They set vicious dogs on us which mauled us for about 10-15 minutes as they watched…”. TheBBCreports on a torture camp at the same mine.

Larvae are nesting in the porridge that fills our skulls, waiting to hatch and tell us that if we don’t get her a diamond, someone else will. In fact, If he really cared about us, he would’ve gotten us a diamond. "It's a big deal for working people to buy a diamond, [...] no matter how small. The wife can wear it for the beauty and she can wear it for the status. And when she does, this guy is not just a plumber - he's a man with a wife with a diamond. His wife owns something that is imperishable. Because beyond the beauty and the status and the value, the diamond is imperishable. A piece of earth that is imperishable, and a mere mortal is wearing it on her hand!" [5]

Remember the Subjective Theory of Value. A good’s value hinges on how much you, the consumer, believe in its worth and wealth is how much we value the sum of our possessions. A diamond can lose value if you find out it’s a blood diamond, and it can gain value if it’s certified to not finance a narrowly defined group of armed militias. De Beers probably does not value their diamonds as much as we do, after all, they mine about85 000 carats a day. We create value by bringing into our possession those gorgeous imperishable stones, because they mean more to us than they mean to De Beers. And don’t forget, the more we desire them and the more we crave them, the more total wealth is created by our diamond purchases, so the Subjective Theory of Value. But maybe we have to be a bit more objective about it. Maybe expensive luxury goods are not the kind of wealth that we want.

[1] This later served as inspiration to Kylie Jenner in launching a gofundme for her makeup artist’s medical bills.
[2] It is, in fact, completely avoidable.
[3] This is not an unlikely explanation. In 2021, two companies, De Beers and Alrosa, controlled about two thirds of global diamond production in 2021. De Beers is expected to gain from Ukraine-war related sanctions on Russian Alrosa.
[4]  The ad suggests to “fight fire with fire” but it is left unclear why there is a fire needing to be fought to begin with: Is it her fire of passion and desire that can only be matched by a big tasteless gemstone? Is it fiery hatred ignited by years of being cheated on?

[5]  The protagonist’s father to his sons in Philip Roth (2006), Everyman

The first image was created by the AI tool DALL·E 2.