From rainstorms in India to the Jewish diamond connection
Diamonds. The very name conjures up visions of wealth, intrigue, and fortunes. Are they real or imagined? Is diamond really the “King of Gems” as claimed by many advertisements? And…is it really true that Diamonds are Forever ™, as claimed in the now famous ad slogan created by N. W. Ayers in the 1940s that has been voted one of the best ad slogans of the Twentieth Century?
The truth is diamonds have a rather shady past…and uncertain future. Why…because the entire diamond market has been based on a monopoly market system that has lasted for over 100 years. In fact, it is one of the only monopolistic markets that survived and flourished within the structure of the modern capitalistic world economy. Before we talk about the current and future status of the diamond markets, let’s go back in time a bit and understand just how these crystals of pure carbon became such a mainstay in the world economy.
India was the place of original discovery of diamonds dating back almost 2400 years ago. In fact, until the 1730s India was the world’s only known source of diamonds. The diamonds were first found in fields after thunderstorms had moved through the area of central India. The locals believed that the diamonds were formed by lightning strikes hitting the ground, and were therefore considered to be a gift from the gods. It was unknown to these early diamond gatherers that they actually lived over a colluvial deposit of diamonds, which is a deposit close to a diamond pipe where the diamonds were being re-deposited by wind and rain. When thunderstorms moved across the area, the rain would wash away a layer of the top soil thereby exposing the diamonds contained in the ground deposits. As these thunderstorms produced a lot of lightning strikes, it was therefore assumed that these lightning strikes actually created the diamonds.
It is important to know that the world’s most important diamonds came from the Golconda region of India. Names such as the Koh-i-Noor, the Orlov, the Hope and the Sancy diamonds all came from this region. To this day, these diamonds are considered the finest diamonds in the world. Virtually all of these diamonds came from the alluvial deposits in the Golconda region, and it was only with the find of the prime source at the Majhgawab lamproite diamond bearing volcanic pipe, that the true source of the Indian diamonds was finally known. To this day, the Indian diamond deposits produce almost 20,000 carats annually…after almost 2400 years of production!
The Golconda name is often used to refer to the finest quality diamonds since the deposits there produced some of the finest in the world. As a result, on occasion you may get a customer who requests a “Golconda diamond,” so you should be aware of this name and the history behind it. Be aware that some unscrupulous diamond sellers make claims of selling Golconda diamonds when, in fact, they have no idea of the origin or source location of the diamond. True Golconda diamonds command a premium price but must be accompanied by the proper papers to establish provenance.
Brazil and Fluctuations in the Diamond Supply
As the European demand for diamonds grew at a fast pace during the 1600s, the production of the Indian diamond deposits began to dwindle by comparison of supply to demand. A new source was needed, and was found by accident. In 1725 a group of gold miners working alluvial deposits in the mountains of Brazil stumbled upon an area that produced diamonds mixed in with their gold ore. A new diamond source had been found!
There were two aspects of the Brazilian diamond find that proved to be important. First, once formal diamond prospecting was begun, it was found that many areas of Brazil produced diamonds. In fact, no less than 12 regions encompassing the entire country produced diamonds in various qualities and quantities. These ranged all the way from the southern region outside of Sau Paulo, to an area that encompassed the entire Amazon River delta. Second was the fact that Brazil was able to produce a huge amount of diamonds from her many sources. So many, in fact, that there were more diamonds being produced than the European markets could absorb. The result? Diamond market prices fell by almost 70% shortly after the Brazilian diamond discovery.
With the availability of a huge source of diamonds at cheap prices, the demand for diamonds in Europe increased. Eventually, the easily mined alluvial diamond deposits in Brazil started to diminish as the deposits were worked out. This caused an eventual shortage of rough diamonds in a market of huge demand, which in turn caused prices to increase dramatically. As is the case in any economy of supply and demand, the sudden decrease in diamond availability in the late 1740s, and the ensuing dramatic increase in price, caused the diamond markets to virtually collapse, as only the very rich could afford to own diamonds once again.
The Age of Mercantilism
An interesting fact about 18th century European economies would make an impact on the diamond markets in the mid-1740s that lasts to this day. During this time the main economic theory was not one of capitalism, but instead one of mercantilism. Mercantilism was Europe’s first effort to establish international trading partners and build national wealth. The key was that certain trades, such as ship building and banking, were far more profitable than being a cobbler (shoe maker) or cartwright (one who makes carts). The result was that those who established themselves in ship building would want their children to also have the ship building business. Not just to carry on the family tradition, but to carry on the family wealth.
The result of mercantilism was that many trades of the day became family heirlooms. The knowledge and trade would simply be passed down from father to son, and it was understood that the son of a cobbler would be become a cobbler. The son of a banker would become a banker. The problem was that if you were born into a cobbler’s family…you were stuck. That was what you were expected to do. That was the trade you were taught because you spent your growing up years learning the trade from your father, who learned it from his father, and so on. Therefore, you were expected to carry on the tradition and teach it to your son.
One of the facts about mercantilism was that once your family was involved in a business, you were pretty much there the rest of your life. As in any economic structure, there were trades that no one wanted to do…either because they were demeaning, or because they did not make much money. In 1740 Europe, diamonds did not make any money, or at least very little money. The supplies were gone, the cutting ability was not well advanced due to lack of technology, and the future of the diamond markets was quite glum as both the Indian and Brazilian deposits were virtually wiped out with no more known sources on which to draw.
It was also during this time that most European countries were monarchies, meaning the king or queen wielded a lot of power. So much that they could decide who was awarded what level on the mercantilism ladder of respectability and profitability. Since the Jewish communities of most European countries were considered of low status, it was determined to limit the Jewish ability to enter into a profitable trade. So….the Jews were severely limited as to what trades they could enter in an effort to insure that they had the lowest economic potential of the day. In 1740 Europe, one of the most unprofitable trades you could work in was….diamond cutter or diamond merchant. So, one of the few mercantile trades that Jewish workers were allowed to work in was…diamonds.
What the mercantilism system did not anticipate, however, was that in 1850 another major diamond discovery would be made in the Bahia region of Brazil. Once again the diamond markets flourished as both supply and demand increased significantly. Of course, by this time the only people who were involved in the diamond markets were members of the Jewish communities…everyone else abandoned the trade as it had become something of a low status trade. It was with few exceptions that only the Jewish diamond cutters knew how to properly cut diamonds, so they flourished along with the new diamond demand throughout Europe. Something quite the opposite of what the governing powers expected at the time. In spite of a depressed market in the early 1860s, the theory of mercantilism ensured the Jewish community a thriving trade, now centered in the Belgian town of Antwerp, as the art of diamond cutting was passed down father to son within their families. Due to many years be required to learn how to properly cut a diamond, this system served quite well as master diamond cutters were able to start their training at a very young age as sons helped and learned from their fathers and grandfathers in the family diamond business.