What do the prices of anklets and diamonds have in common?
Picture this: you’re in economics class in 11th grade or thereabouts. You go in there thinking you understand the basics of supply and demand, but then the teacher puts all these graphs on the board and you have no idea what she’s talking about. You say to yourself: How can something that I understood just 5 minutes ago be so complicated? The answer is: school is not really education. They are charts, like the supply and demand chart. If you don’t understand the chart, you don’t understand supply and demand, even though you knew that before you saw the chart. So without charts let’s talk about supply and demand with diamond prices.
Diamond prices fluctuate, but not really that much compared to other commodities. But why are there diamond prices in the first place? What I mean is, why are they worth anything? Why does nobody want them? The answer, as my old AP US History teacher told me when he was in 11th grade, is… ankles.
I was explaining why marijuana is still illegal, but the same principle applies here. Diamond prices are high because people want them, and people want them because other people want them, because the culture has held its own on that front. We think they are valuable, so they stand tall. Showing ankles used to be scandalous, and would still be if the culture hadn’t evolved since the 19th century in that way. Marijuana remains illegal because the culture of marijuana legalization has yet to go through a revolution at the ankles. But there is no other objective reason.
So diamond prices are still very high. Why? Can’t you change the culture with respect to this simple stone? The answer is yes, but the economy prevents them from falling even if the culture wants them to change. What prevents them from falling is monopolized. One day, the company that basically controlled the diamond market and almost all of the supply, and therefore all of the demand (forget the chart) and therefore all of diamond prices, decided that a good diamond ring had to cost between two and three months of an average salary.
The problem was that for diamond prices to be lower, something called competition was needed. The competition is basically a non-DeBeers company that turns DeBeers on its head and says, “We’re lowering our prices so people will buy from us and you’ll be out of business.” If DeBeers wanted to stay in business in that kind of situation, it would have to lower diamond prices accordingly. It would be a completely different world. But there was no one at the time to turn around DeBeers, the proverbial bird.
It is the extraordinary level of diamond prices that fuels many of the wars of African militias through the clandestine conflict diamond trade. If they were significantly lower, it is doubtful that African tribes could finance each other as efficiently. Who knows how the continent would have turned out? Something tells me that regardless of the prices, they would find a way to do it anyway. But this is to dream.
