The Huffington Post recently ran an article that started with this anecdote:

"American males enter adulthood through a peculiar rite of passage — they spend most of their savings on a shiny piece of rock. They could invest the money in assets that will compound over time and someday provide a nest egg. Instead, they trade that money for a diamond ring, which isn’t much of an asset at all. As soon as you leave the jeweler with a diamond, it loses over 50 percent of its value."

So if diamonds lose their value the minute you buy them, why do we continue to buy them? And, more importantly, why are they so expensive? We can all thank two people: Cecil Rhodes and Ernest Oppenheimer.

Rhodes, a well-known British imperialist, founded De Beers, the greatest diamond company the world had ever seen. Oppenheimer, the son of a Jewish cigar merchant, succeeded in forcibly wresting control from Rhodes and masterminded the you-all-need-to-give-the-woman-you-love-a-diamond-if-you-are-any-kind-of-man social norm. Before the massive diamond discovery in South Africa, diamonds were mostly found in India and Brazil. They truly were rare and were strictly reserved for royalty. But after 1867, the supply of diamonds increased dramatically. But what good would this diamond find be if diamonds were no longer seen as rare — I mean, who wants to pay top dollar for pressurized carbon if it's ubiquitous?!  

The Kimberly Mine in the 1870s

Rhodes arrived in South Africa thinking he would make it big in agriculture. He didn't. No matter, he soon left for the diamond mines of Kimberly where he was going to make it big. Boy did he ever. Year after year, he bought up more and more mines until he finally owned the vast majority of all the diamond mines in South Africa. He needed to make sure that diamonds, for the first time in history readily available, stayed expensive. In what The Atlantic called the "the most successful cartel arrangement in the annals of modern commerce,he created, no joke, something called the Diamond Syndicate. It controlled everything. The mining, the distribution, and the sale of diamonds. Everything was controlled. In this way they could manipulate the price of diamonds and keep up the appearance of scarcity. And everything went smoothly...until the Great Depression. Buying a diamond was simply not on people's minds when there was no food on the table. 

De Beers hired the public relations firm N. W. Ayer to make diamonds snazzy again. A study they conducted found that young men bought 90% of all engagement rings. It was them they had to convince that a diamond was connected with love. De Beers efforts to also convince these young men the bigger the diamond the better was not as hard (for obvious phallic reasons). De Beers also went about wooing Hollywood (the first product placement). The diamond company succeeded on both fronts. Since 1940, unlike every other commoditygold, oil, copper, and silverdiamonds have increased in value every year. The monopoly seemed unstoppable. In fact, when Israel (Tel Aviv is one of the diamond cutting capitals of the world and the Jewish people are intimately connected with every aspect of the diamond industry) tried to play by their own rules, they were quickly punished. 

Diamond were the first product placements

It all started back in the 1970s. Israel was going through a period of high inflation and diamonds became one of the best ways of securing preferential loan rates. This meant that merchants started hoarding diamonds. Although this hoarding caused the price of diamonds to skyrocket, it was not good for business. The whole point of diamonds being "forever” was that they were not to be resold. The minute diamonds started becoming investments, De Beers would no longer be able to control the supply. De Beers tried everything to get them to stop hoarding diamonds and, when they didn't, Israel was simply kicked out of the Diamond Syndicate. The country then known as Zaire also tried to skirt the rules. De Beers then dumped millions of dollars worth of diamonds on the market to make the Zaire diamonds almost worthless. It might have cost De Beers billions to keep Zaire and Israel in check, but the monopoly had to be kept in all costs. 

Unfortunately for De Beers, the good times had to come to an end. New, HUGE, diamond mines were found in Russia, Canada, and Australia. None of the companies operating in those countries wanted any part of the De Beers system. The amount of newly found diamonds in these places allowed the companies to compete with De Beers. That had never happened before. For a company that had dominated an entire industry so effectively and for so long (and directly affected the economies of places like Israel and Botswana with a simple directive from corporate headquarters) the end came fairly quickly. In less than 20 years, De Beers saw its share of the market go from over 90% to about 35%. It simply could not compete. The Oppenheimers themselves do not even own De Beers any more. In 2011, Anglo American Plc agreed to buy the Oppenheimer family’s stake in De Beers for $5.1 billion in cash, effectively ending the family’s 80-year ownership in the world’s former diamond cartel.