ECONOMICS ESSAY – THE PRICE OF DIAMONDS IS TOO HIGH
“Diamonds are a girl’s best friend,” the title of the song from the original Broadway production of Gentlemen Prefer Blondes, made famous by Marilyn Monroe in a film of the same name, has epitomized society’s materialistic aspirational appetite for symbols that represent wealth and status.
This essay argues that the sparkle in diamonds is not necessarily what it appears to be, because it is based on a general misperception that diamonds are a scare commodity and therefore valuable. To establish whether or not “the price of diamonds is too high,” it is important to understand the history of what determines the price of diamonds.
According to Mike Peng in Global Strategy at page 229, it all started when Cecil John Rhodes founded De Beers Mines in South Africa in 1875. Rhodes is said to have realized that, as South Africa was the then only significant producer, the supply of diamonds needed to be limited and controlled. The diggers or producers had little control over the quality or the quantity of their output and the buyers or merchants had no control over the security of supply. According to Peng, “Rhodes’s solution was to create an ongoing agreement between a single producer and a single buyer in which the supply was kept low and prices high.” (Peng, 2006)
Rhodes acquired all the major diamond mines and formed a diamond merchants’ association in the 1890s, called the Diamond Syndicate, to which he and other miners sold their diamonds (Peng, 2006). The members acquired the diamonds from the Diamond Syndicate and, in accordance with the rules thereof, sold them at prescribed quantities and prices. This was the birth of the diamond cartel.
Since 1888 the De Beers controlle...
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... ed. Australia: Thomson/South-Western, p.229
Stocking, G. W. and Watkins, M. W. 1948, ‘Cartels Competition – The Economics of International Controls Business and Government 1, HeinOnline, 1948.pp.3-4
Online Images:
Ajediam.com, 2013. Yearly increase of diamond value +14.47%. [image] Available at: http://www.ajediam.com/images/Historical_diamond_prices_graph.JPG [Accessed 20 Apr. 2014].
Courses.byui.edu, 2014. Not Allocatively efficient: P>MC. [image] Available at: https://courses.byui.edu/econ_150/econ_150_old_site/images/8-1_Monopolies_17.jpg [Accessed 20 Apr. 2014].
Harpercollege.edu, 2014. Its behavior and results fit the monopoly model portrayed in Figure 11-4. It sells a limited quantity of diamonds that will yield an "appropriate" monopoly price. [image] Available at: http://www.harpercollege.edu/mhealy/ecogif/monopoly/fig11.4.gif [Accessed 20 Apr. 2014].
...tually break up monopolies when they formed, by specific legislation” (600). They see that the government is letting the business tycoons to own whatever land they want and extend their fortunes. Unlike the first two books, Johnson’s book discussed the history of the book without bias and from a different perception; one that was not came from an American view.
...sumption, creates emission of greenhouse gases and other harmful chemical materials. Once released into the air, it can cause environmental problems, which in turn threatens not only the environment, but also the health of the people who live in it. In order to reduce the use of energy to help protect our planet and our health, the diamond mining industry has implemented renewable energy programs to monitor energy and carbon emission. Since its beginning, mining company PHP Billiton program has saved an equivalent of one million liters of diesel fuel per year at their Ekati Diamond Mine in Canada’s Northwest Territories. The health of the environment and the health of humanity are as one. Whatever we do to our planet, we do to ourselves. Reducing energy consumption of diamond mining not only helps protect our planet, but also helps protect the health of our people.
The power of a government-created monopoly over the market depends on the existence of close substitute products. If people view emeralds, rubies and sapphires as quite worthy substitutes diamonds over the market power of a relatively limited. In this case, any attempt to achieve increase of diamond prices will lead to the fact that consumers will switch to the acquisition of other precious stones. But if people believe that these stones are considerably inferior diamonds, the company is able to significantly affect the market price of the latter.
Valuing a diamond is a highly skilled task thus not traded on world frequently. (Valued on the basis of four criteria- 4C s carat clarity color and cut)
A beautiful precious diamond can last forever, but what most people do not know is that a majority of our diamonds come from Africa. The civil wars in Africa over diamonds began around 1961 and ended in 2003. Conflict diamonds were rampant and it would be difficult to say if any jewelry sold prior to 2003 was conflict free. Conflict diamonds are diamonds that have been mined and were controlled by African rebels. The rebels would use the profits from selling conflict diamonds to fund illegal activity and to purchase more weapons for their armies. While rebels had control of the diamond mines they killed approximately 4 million people and countless families were displaced.
It’s hard to imagine that a mineral could be fueling wars and funding corrupt governments. This mineral can be smuggled undetected across countries in a coat pocket, then be sold for vast amounts of money. This mineral is used in power tools, parts of x-ray machines, and microchips but mostly jewelry. Once considered the ultimate symbol of love, the diamond has a darker story. "Blood" diamonds or "conflict" diamonds are those mined, polished, or traded in areas of the world where the rule of law does not exist. They often originate in war-torn countries like Liberia, Sierra Leone, Angola, and Côte d'Ivoire were rebels use these gems to fund genocide or other questionable objectives. Even with a system known as the Kimberly process which tracks diamonds to prevent trade of these illicit gems, infractions continue as the process is seriously flawed. The continuation of the blood diamond trade is inhuman, and unethical, and in order to cease this illicit trade further action to redefine a conflict diamond, as well as reform to the diamond certification prosess is nessasary.
Deep within African mines, elusive diamonds lay enveloped in the Earth’s crust. Possessing much influence, beauty, and tension, nature’s hardest known substance causes parallel occurrences of unity and destruction on opposite sides of the globe. Diamonds, derived from the Greek word "adamas", meaning invincible, are formed deep within the mantle, and are composed entirely from carbon. Moreover, only under tremendous amounts of heat and pressure can diamonds form into their preliminary crystal state. In fact, diamonds are formed approximately 150km- 200km below the surface and at radical temperatures ranging from 900-1300 C°. When these extremes meet, carbon atoms are forced together creating diamond crystals. Yet how do these gems, ranking a ten on Moh’s hardness scale, impact the individual lives of millions of people besides coaxing a squeal out of brides-to-be? These colorless, yellow, brown, green, blue, reddish, pink, grey and black minerals are gorgeous in their cut state, but how are these otherwise dull gems recognized and harvested? Furthermore, how and why is bloodshed and violence caused over diamonds in Africa, the supplier of approximately 65% of the world’s diamonds? (Bertoni) The environmental, social, and economic impact of harvesting, transporting, and processing diamonds is crucial because contrary to popular belief, much blood has been spilled over first-world “bling”.
Hocking and Waud 1992, `Oligopoly and Market Concentration' in Microeconomics 2nd Edition, Harper Educational Publishers, NSW, pp-315-342.
Fought over for centuries and claimed by many, the owner of this diamond only yields it to another at the cost of an empire. Believed to have originated from the depths of an ancient Indian mine, the Kohinoor Diamond is a missing link to an illustrious past of a fledgling modern nation. Since its independence, Indians, both in the Republic of India and those who reside throughout the Commonwealth, have demanded the return of the sacred jewel. A demand the British government has continually refused. For the British, the diamond is also a reminder of their renowned past when the sun never set upon their domain. Forever covered in the blood of its past owners, men and nations will continually fight one another, rather with words or war, just for the opportunity to hold the cursed gemstone.
Santarossa, B. (2004, January 13). Diamonds: Adding lustre to the Canadian economy. Retrieved November 06, 2017, from https://www.statcan.gc.ca/pub/11-621-m/11-621-m2004008-eng.htm
In 1785, the court jewelers, Bohmer and Basange, constructed a necklace with five hundred and forty diamonds of varying sizes in an ugly arrangement that resembled the collars worn by circus animals. They hoped that King Louis XV would purchase it for his favorite, Madame du Barry. Unfortunately, the king died before the necklace was completed. So, naturally the jewelers tried to sell the piece to the newly crowned Queen, Marie Antoinette, because she was known for her extravagant spending and taste. They priced the jewelry at and equivalent of two million dollars in modern money. The Queen declined the offer. She did not like the necklace and the price was even too high for her. Knowing that they would be ruined if the Queen didn’t buy their product the jewelers continued to plead with her for ten years. Each time she turned them down. Then, one day the Queen received a note signed by Bassange which said, “We have real satisfaction in thinking that the most beautiful set of diamonds in existence will belong to the greatest and best of Queens.” Puzzled by the message, the Queen, put the note to flame by a candle sitting on a nearby table (Komroff 85).
iii. India dominates the world’s cut and polished diamonds (CPD) market. In value terms, the country accounts for approximately 55 percent of global polished diamond market and nearly 9 percent of the jewellery market. According to GJEPC's provisional estimate, cut and polished diamonds registered 19.06 percent growth in exports at US$ 7.11 mn.
Posner, R.A., (1975) The Social Costs of Monopoly and Regulation, The Journal of Political Economy, Vol. 83, No. 4, pp. 807-828, The University of Chicago Press
[5] Diamond Industry Annual Review, De Beers Signs New Angolan Agreement, [internet] Accessed on: 13th November 2005, http://www.pacweb.org/e/images/stories/documents/addendum%20angola%202005-english.pdf
Diamonds were created million years ago, when the earth was formed, the material experienced pressure of 5million times the atmosphere at sea level and temperatures between 1000~1200degreesC. These conditions caused carbon in the layers inside the planet to crystallize into diamonds. The diamonds moved up to the earth’s surface through volcano eruptions. This is why many Diamond mines are near volcanoes. Diamonds occur in two types of rock: Kimberlite and Lamprolite. Diamonds are mostly found in South Africa, India, Brazil, Russia, Australia, and Arkansas. Right now about 100million carats are mined each year. Today the largest cut Diamond in the world is the Cullian I at 530.2ct .