Economics @ ITT

Have You Ever Tried to Sell a Diamond? A History of Exploitation

Posted in economics, microeconomics by ittecon on February 15, 2013

An old but wonderfully insightful article about the scam of diamonds.

The diamond invention—the creation of the idea that diamonds are rare and valuable, and are essential signs of esteem—is a relatively recent development in the history of the diamond trade. Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value—and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious gems.

via Have You Ever Tried to Sell a Diamond? – Edward Jay Epstein – The Atlantic.

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2 Responses

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  1. Robert Nielsen said, on February 15, 2013 at 5:22 pm

    Thanks for sharing an absolute fascinating and deeply interesting article. Diamonds are a perfect example of conspicuous consumption and the power of advertising. How do they fit into your typical demand and supply model?

    • ittecon said, on February 22, 2013 at 10:25 am

      This is a prime example of monopoly through controlling supply—the same goal the Hunt brothers attempted in the 1970s in their attempt to corner the silver market. After all, the tidy “preference” excuse for demand shifting notwithstanding, the market can only price what it has knowledge of. Also recall Ariely’s bit on black pearls in chapter 2, The Fallacy of Supply and Demand, of Predictably Irrational.


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