Apr 092013

diamondsAs almost everyone who’s bought a diamond knows – along with most people who haven’t – diamonds are only valuable because de Beers wants them to be. Through strict monopoly practices and careful marketing they can sell cheap, abundant shiny rocks at a huge markup. Some people say this is bullshit, and that we should overturn the system. I think they’re doing us a favor.

Consider: what is the primary function of a diamond? It certainly isn’t to look pretty – plenty of things look just as pretty at much more reasonable prices. Cubic Zirconium and polished glass give you functionally identical beauty at a fraction of the cost. What is the first thing you think when you see a really big, sparkly diamond on someone’s finger? “Damn, that must’ve cost a ton.” The function of a diamond is simply to be expensive in a way that everyone recognizes.

Other substances aren’t as useful for this purpose. There are a wide variety of precious gems and very few people have a working knowledge of how much they cost, and how stable that price may be. Thanks to de Beers throttling of supply (to make the price high and stable) and extensive advertising (to ensure everyone knows how high the price is) everyone knows just how expensive that diamond is. Metals can be tricky (Can you easily tell silver from white gold from platinum?) and can be impractical – to give a woman a $10,000 gold ring you’d have to make it a 6 ounce ring. Diamonds are a much more compact package.

There are other gems which are also very valuable, but they suffer from the same recognizability problems – most people aren’t able to quickly tell they are expensive. A celebrity can get away with an exotic gem, as the tabloid media will inform everyone how much it costs. But the average guy needs something that is already well-known.

In additional, gem diamonds aren’t very useful for other applications. If people couldn’t use diamonds as their social wealth-barometer they may turn to substitutes that actually are rare. If those substitutes have alternative uses we may be bidding away material that is providing us with a real benefit simply for our signaling games. (And yes, industrial diamond would be a bit cheaper if it wasn’t for 20% of it going to gems, but it’s not in short supply).

So sure, de Beers is extracting huge profits. But as long as we’re going around comparing what we make by glancing at the hand of the other person’s spouse, someone will be making those profits. It might as well be the organization that’s putting in the effort of limiting the supply of a cheap product, and stabilizing and advertising its price, all while preventing us from using up useful minerals. Cheers to de Beers!

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