Carpe Diem

On the economics of diamonds, the biggest marketing scam in history

Image Credit: Jeffrey Beall (Flickr) (CC BY-SA 2.0)

Image Credit: Jeffrey Beall (Flickr) (CC BY-SA 2.0)

From the Priceonomics blog post “Diamonds Are Bullshit“:

Americans exchange diamond rings as part of the engagement process, because in 1938 De Beers decided that they would like us to. Prior to a stunningly successful marketing campaign 1938, Americans occasionally exchanged engagement rings, but wasn’t a pervasive occurrence. Not only is the demand for diamonds a marketing invention, but diamonds aren’t actually that rare. Only by carefully restricting the supply has De Beers kept the price of a diamond high.

Countless American dudes will attest that the societal obligation to furnish a diamond engagement ring is both stressful and expensive. But here’s the thing – this obligation only exists because the company that stands to profit from it willed it into existence.

So here is a modest proposal: Let’s agree that diamonds are bullshit and reject their role in the marriage process. Let’s admit that as a society we got tricked for about a century into coveting sparkling pieces of carbon, but it’s time to end the nonsense.

A diamond is a depreciating asset masquerading as an investment. There is a common misconception that jewelry and precious metals are assets that can store value, appreciate, and hedge against inflation. That’s not wholly untrue. Diamonds, however, are not an investment. The market for them is neither liquid nor are they fungible.

The next time you look at a diamond, consider this. Nearly every American marriage begins with a diamond because a bunch of rich white men in the 1940s convinced everyone that its size determines your self-worth. They created this convention – that unless a man purchases (an intrinsically useless) diamond, his life is a failure – while sitting in a room, racking their brains on how to sell diamonds that no one wanted.

We covet diamonds in America for a simple reason: the company that stands to profit from diamond sales decided that we should. De Beers’ marketing campaign single-handedly made diamond rings the measure of one’s success in America. Despite its complete lack of inherent value, the company manufactured an image of diamonds as a status symbol. And to keep the price of diamonds high, despite the abundance of new diamond finds, De Beers executed the most effective monopoly of the 20th century. Okay, we get it De Beers, you guys are really good at business!

Diamonds are not actually scarce, make a terrible investment, and are purely valuable as a status symbol. Diamonds, to put it delicately, are bullshit.

MP:As I wrote back in 2006, in the early days of Carpe Diem:

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 cartel, and charge consumers an artificially 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 has been completely man-made and artificial, carefully created and orchestrated by the De Beers 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 market manipulation of the diamond industry, and why is it possible that “cartels aren’t forever?” Cultured, laboratory-grown diamonds, produced in diamond growth chambers by companies like Gemesis that have the same physical, chemical and optical characteristics as a mined diamond.

Bottom Line: Don’t support the unethical, anti-consumer market manipulation of the diamond industry, don’t buy into the myth and scam of “false scarcity,” and if you must buy diamonds, buy laboratory diamonds!

67 thoughts on “On the economics of diamonds, the biggest marketing scam in history

  1. Not so sure they were white men in that sense ??? I thought they were; well let’s just say there is a clue in the name Jewelry where many diamonds sleep. Anyway its only money so what does it matter. Curious as to when a piece of paper became worth more than a stone hmmm. I would swap a piece of paper for a stone any day. Reminds me of that game. You know Stone Paper and Scissors. Now scissors they are useful I wonder who invented them. I never could afford a pair of scissors never mind a diamond. And why do they call them a pair of scissors ? Nearly forgot how I started. Ah yes I remember. Is the earth flat.

  2. Maybe this is what is going on with oil? Maybe there is an ever abundant source of it and the oil barons are just trying to hold on to the market. So they make fake press saying that it is running out and they have to drive the price up.

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