The Investigation
The Invention
The Wars
Diamonds Are Not Forever






The syndicate in London to which Rhodes contracted to sell De Beers' entire production of diamonds in 1893 was made up of ten firms. These were Wernher, Beit & Company, Barnato Brothers, Mosenthal Sons & Company, A. Dunkelsbuhler, Joseph Brothers, I. Cohen & Company, Martin Lilienfeld & Company, F. F. Gervers, S. Neumann, and Feldheimer & Company. All these firms were interconnected by marriage and family ties, and all were owned by Jewish merchants. The fact that Jewish companies completely dominated the distribution of diamonds at the end of the nineteenth century was not particularly surprising. For a thousand years, diamonds had been almost entirely a Jewish business.

Until the early part of the eighteenth century, the entire world's supply of diamonds came from India. The caravans that brought them across Arabia traded these rare stones to Jewish traders in Aden and Cairo for gold and silver. The traders then resold them to Jewish merchants in Venice, Lithuania, and Frankfurt. It was a natural enterprise for the Jews scattered throughout central Europe: Since they were moneylenders, they had to concern themselves with assessing, repairing, and selling gems that had been offered to them as collateral for loans. They also had close connections with the Jewish trading centers in the Ottoman Empire through which all the Indian diamonds passed.

The cutting and polishing of diamonds, moreover, was one of the few crafts that Jews were permitted to participate in by the medieval guilds in Europe. For most Jews, there was no choice in those days: If they wanted to have a vocation, it had to be either gem-polishing or money lending. In either case they dealt with diamonds.

In the sixteenth century, when the Portuguese succeeded it, establishing an ocean route to India, the caravan routes were supplanted by ships. The Jews in Portugal, who were mainly Sephardic (i.e. non-European) Jews, quickly made arrangements in Lisbon for ships' officers to buy diamonds directly from the Indian miners in Goa. And Lisbon became the main entry point in Europe for diamonds.

Jewish entrepreneurs then set up cutting factories in Lisbon (and also in Antwerp.) They employed the poorer Ashkenazi Jews from eastern Europe as cutters and polishers in these factories. Until nearly the end of the sixteenth century, the diamond industry thrived.

During the Inquisition, diamonds proved to be an invaluable asset for the Jews. Unlike almost any other asset, they were small enough to be concealed on the body; and they were also instantly redeemable for money in any country in Europe. For the Jewish people, who lived for centuries m constant fear of expulsion from their homes, diamonds became a logical means of storing and preserving their wealth.

When the Jewish diamond merchants and workers were forced by the Inquisition to flee from Lisbon and Antwerp, they resettled in Amsterdam. Since cutting factories required no equipment except for hand tools, which were portable, the Jews instantly transformed Amsterdam into the diamond center of Europe. By the middle of the seventeenth century, Jewish diamond merchants helped finance the Dutch East India Company, which organized its own trade route to India. So Amsterdam then replaced Lisbon as the port of entry in Europe for India's diamonds.

Just as the fields in India began to cease yielding diamonds, more were discovered in 1725 in Brazil. The Dutch maneuvered to gain control of this traffic, but now they had to contend with the rise of British sea power. By the mid eighteenth century, the British had almost completely taken over the trade in diamonds, both from India and Brazil. As the trading center for uncut diamonds shifted from Amsterdam to London, so did the Jewish diamond merchants. In England, they were granted licenses to import uncut diamonds, and they quickly organized a triangular trade in silver, coral, and diamonds. Silver was exported to Leghorn, Italy, where the proceeds from sales were used to buy coral; the coral was then imported into England and the proceeds used to buy diamonds from Brazil and India. The Jewish traders sent the diamonds to cutting factories that had been re-established in Antwerp, and from there, the jewels were sold to all the royal courts of Europe. To select and evaluate these diamonds, the courts chose Jewish gem experts, who became known as "Court Jews." In Sweden, it was the Isaac family; in Hamburg, it was the Lippold family; in Vienna, it was the Oppenheim family.

According to the records of the British East India Company, Jewish traders controlled virtually the entire world diamond traffic by the end of the eighteenth century. The Brazilian fields, however, were becoming rapidly depleted of diamonds, and no more diamonds were coming out of India. just as it appeared that the world might run out of diamonds, the South African mines were discovered in the eighteen-sixties.

The ten leading Jewish merchants in London, fearing that the market would be flooded with South African diamonds, quickly formed a syndicate to buy up all of the production from these new mines. A number of the merchants in this syndicate had also acquired large stock holdings in the De Beers monopoly itself. One of the merchants who took the lead in arranging the deal with Cecil Rhodes was Dunkelsbuhler. Dunkelsbuhler brought into his London company a sixteen years old apprentice from Friedberg, Germany. He was Ernest Oppenheimer, and he would complete the diamond invention.

Oppenheimer came from a large German Jewish family and had two brothers and three cousins who worked in the diamond syndicate. Thus, even as he began as a Junior clerk in Dunkelsbuhler's London office, Oppenheimer was well connected in the diamond world.

He began by sorting rough diamonds, under the supervision of his brother Louis. Louis Oppenheimer not only managed Dunkelsbuhler in London but also coordinated the pricing and classification of diamonds in all the other firms in the syndicate. During this period, Ernest Oppenheimer read all the correspondence that came in from Dunkelsbuhler's representative in Kimberley. Almost from the beginning, he had his heart set on going to the diamond fields, according to a memoir by a diamond sorter who worked with him. "Ernest had bought a six-penny book, in which he carefully noted, meticulously ordered, everything that might be conceivably of some use to him," the sorter, Etienne Fallek, later recalled.

Finally, in 1902, his brother dispatched Ernest to South , Africa to run Dunkelsbuhler's small buying office in Kimberley. His salary was 500 pounds a year. He was in many ways the prototype of the multinational businessman: German by birth, British by naturalization, Jewish by religion, and South African by residence.

He usually wore a white starched collar, a dark tie and a long frock coat. He rarely spoke to his fellow workers and he always kept his notebook at his side. Although some of the other sorters in the office simply assumed that he was a compulsive scribbler, Oppenheimer was in fact preparing a detailed analysis of the diamond-mining business. He had an excellent vantage point. Diamonds poured into the office from all the mines in Africa and were graded according to weight, size, shape, color and quality. By studying the records in the office, he was able to determine both the special characteristics and profitability of the production of each mine.

He also traveled around to the independent diggings around Orange River to buy diamonds and evaluate claims for Dunkelsbuhler. It was all part of his education in the diamond business.

In 1908, his cousin Frederick Hirschhorn became the syndicate's chief representative in Kimberley. Oppenheimer, who was close to his cousin, spent considerable time at the syndicate's sorting room. Here he became familiar with the way in which the diamonds were divided among the members of the syndicate and the particular categories of diamonds that the various syndicate members preferred.

Oppenheimer's initial success in acquiring capital came, however, from gold rather than diamond mines. A group of German investors, who were clients of Dunkelsbuhler, wanted to invest in gold properties in the Transvaal, and Oppenheimer arranged for them to buy an interest in operating gold mines. In making these deals, he took for himself a small percentage of the venture, as well as an option to increase his participation at a future date.

By 1914, the Germans had sunk an enormous amount of capital into expanding these gold mines. The outbreak of the First World War made their investment increasingly precarious: Germany was, after all, now an enemy of the British Commonwealth. Moreover, there were constant demands in the press for the expropriation of enemy assets in South Africa. As the pressure mounted on the South African government, Oppenheimer found a solution for the German investors. He personally created an international corporation in which the German interest could be subtly diffused with those of investors of other nationalities. He blended into this new corporation the percentages and options that he had obtained as a deal maker and also a number of interests that had been acquired by his cousins and other relatives in South Africa.

To avoid drawing any unnecessary attention to the German investments, he proposed giving the corporation a name that would strongly suggest an "American connection," as Oppenheimer put it. In a letter to his associates, he wrote, "Our aim should be for our company to make its debut as a new factor in South African finance." After considering the name United South Africa Company, which would be abbreviated USA Company, and then the Afro-American Company, they finally decided on the Anglo-American Corporation, which sounded very much like the Anglo-American alliance that was then winning the war. The mask seemed to work at least with the South African press: when the new corporation was announced in September 1917, the Rand Daily Mail proclaimed in a headline, "American Millions for the Rand."

After establishing his corporation, Oppenheimer quickly shifted his attention from gold back to diamonds. As early as 1910, he had concluded in a memorandum that "the only way to increase the value of diamonds is to make them scarce, that is, to reduce production." He believed that De Beers could bring about such scarcity but only if it expanded its reach beyond the borders of South Africa. He viewed control of the South African mines as a necessary, but not sufficient, condition for an effective diamond monopoly.

After Rhodes' death, the management of De Beers had based its monopoly on the proposition that there would not be new major discoveries of diamonds. When a bricklayer named Thomas M. Cullinan claimed to have discovered diamonds in a huge oval of yellow dirt some 600 miles north of Kimberley, De Beers geologists scoffed at the idea of diamond pipes existing outside of the Kimberley area. Frank Oats, who had succeeded Rhodes as head of De Beers, went so far as to declare that "the whole thing was a fake." He suggested to De Beers stockholders that the mine, which Cullinan named the Premier mine, had been "salted" with diamonds from the Kimberley area.

It quickly turned out Oats had been wrong: The Premier was a diamond pipe, larger than any other found in the world, and four times the the size of Kimberley's Big Hole mine. When the news was conveyed to Alfred Beit, who along with Rhodes and Barnato been a life governor of De Beers, he had a heart attack from which he never recovered.

Cullinan himself was prepared to fight another diamond war rather than sell out to De Beers. To raise capital for this mine, he sold a majority interest to the Transvaal government. Fortunately for De Beers, the British had just triumphed over the Boer settlers in the Transvaal in the Boer War, and they were able to pressure the Transvaal into coming to terms with De Beers.

Before Oppenheimer could achieve this world monopoly, he first, of course, had to get control of De Beers. The device he used to win a dominant position in De Beers was very similar to the one used by Rhodes a generation earlier. He acquired a diamond property for Anglo-American that De Beers desperately needed to maintain its monopoly. He then offered to exchange the property for a substantial number of shares in De Beers itself. This property was in the German colony of South-West Africa (now Namibia).

The first diamond was found there by a railroad worker in 1908 and identified as such by August Stauch, the railroad station master in Luderetz. Then it was discovered that the entire stretch of beach behind the Namibian desert was strewn with diamonds. Laborers who had been working on the railroad were quickly transferred to the Namibian beaches where they were lined up and forced to crawl on their hands and knees sifting through the sand for diamonds. The laborers were gagged by the Germans to prevent them from putting the diamonds in their mouths and stealing them. Whenever they found a diamond, it was dropped in a tin that the German guards carried with them.

When the Germans realized that they had broken the British monopoly on diamonds, the colonial authorities immediately ordered the entire beach sealed off into a Sperrgebiet, or forbidden zone, and consigned all the diamonds found there to a German syndicate called the "Diamond Regime." As the extent of this discovery became clear to South African officials in Capetown, the prime minister termed the German discovery "a hideous calamity for us all." The De Beers monopoly might have been broken by the Germans with their Namibian diamonds if it had not been for the outbreak of the First World War in 1914. South African troops immediately seized the diamond beach and shut down its production.

With the German investors in a state of near panic, Oppenheimer saw the possibility of staging his coup. He had personally assessed the various German properties in the forbidden zone on behalf of the London syndicate, and working through his network of cousins in Germany, he offered each of the major German investors shares in the Anglo-American Corporation for their holdings in the Namibian diamond beach. It was a deal they found difficult to reject. Since most of these Germans fully expected their assets to be appropriated by the allies for the duration of the war, they had little hope of receiving any income from them. The Oppenheimer exchange provided them with a liquid asset. Those who preferred not to accept Anglo-American stock received a cash payment. In the end, Oppenheimer acquired almost all of the German properties, which he reorganized into company called Consolidated Diamond Mines.

Before he could complete his coup, Oppenheimer needed the permission of the South African government to transfer the seized German assets to a South African corporation. Here he relied on the close working relationship he had with Jan Smuts, the South African prime minister. By 1919, the transfer was complete, and he had the bargaining chip he needed for dealing with De Beers.

Oppenheimer had perceived from the beginning, De Beers, could not afford to wage a diamond war against his Consolidated Diamond Mines. The beaches of Namibia held far too many diamonds for competition to prove anything but ruinous. Nor did Oppenheimer have any intention of competing with De Beers.

Instead, Oppenheimer offered the Namibian diamond to De Beers in return for a large block of stock. He was immediately given a place on the board of directors. At every opportunity, he bought more shares of De Beers. So did his cousins. By 1927, he had become the most powerful force in the diamond monopoly. When an English peer, Lord Bessborough, was made chairman, he objected "I cannot imagine anything worse for De Beers.... One can only have influence with the government if De Beers is looked upon as a South African company, and that feeling would be entirely destroyed by making a man in London chairman." He appealed to Lord Rothschild, whose bank still owned a large block of stock in De Beers, to support his candidacy, and in 1929 Oppenheimer became chairman of the board of De Beers. He was then knighted by the king of England for his services to the British Empire.

Whereas Rhodes had seen the diamond monopoly as a means of extending the British Empire, Oppenheimer saw it as an end in itself. He wanted to create a truly international business that owed its allegiance to no single nation. His strategy, he explained to his brother Louis in a letter, was to make De Beers "the absolute controlling factor in the diamond world." By "absolute," he meant control of each and every link in the diamond chain that led from the mines to the distribution network for diamonds. He reasoned that "the danger to the security of the diamond industry is not the discovery of a new rich diamond field, but the irrational exploitation of it." If De Beers could choke off the "irrational" sale of diamonds before they reached the retail market, it could contain any temporary oversupply of diamonds that developed from new mines. It was imperative to prevent at all costs the retail price of diamonds from falling.

Oppenheimer moved quickly to consolidate his position. He merged Consolidated Diamond Mines into De Beers, and strove through his banking connections to gain additional financial support for the company. When all the complicated exchanges of stock were completed, Oppenheimer's Anglo-American Corporation emerged as the controlling shareholder in De Beers.

In 1929, the onslaught of the worldwide Depression strained the ability of the syndicate in London to continue to absorb the world's diamond production. Since the public virtually stopped buying diamonds, the syndicate had to retain almost all the diamonds mined in the world. By 1931, it was oil the verge of bankruptcy, and cabled its office in Kimberley "No sale possible. Best offers for small quantities were well below cost price. Market quite demoralized. Inform Sir Ernest Oppenheimer."

Oppenheimer immediately understood the gravity of the situation. The syndicate could no longer afford to keep its stockpile intact, and if it placed even a small portion of the diamonds on the market, the price would totally collapse. He further realized that this could forever destroy the public's trust in diamonds as a store of value. He had only one alternative: to now take over the syndicate.

Since Oppenheimer and his relatives owned shares in leading members of the syndicate, there was little resistance to the takeover. The subsequent exchange of stock in fact enhanced, rather than diluted, Oppenheimer's control of the monopoly. He put his younger brother Otto in command of the distribution arm in London, which was now called the Diamond Corporation. He then created the Diamond Trading Company, which took over the responsibility of the syndicate for allocating diamonds to manufacturers and wholesalers.

World sales had fallen to practically nothing- a mere $100,000 worth in 1932- and Oppenheimer next moved to curtail the supply of diamonds. One by one, he closed all major mines in South Africa. Production fell from 2,242,000 carats in 1930 to 14,000 carats in 1933. He also closed the beach mines in Namibia. A confidential market analysis, commissioned by De Beers, noted, "The diamond market is exceedingly sensitive to adverse conditions and rapidly dwindles when such conditions are in the ascendent."

Prices were plunging even after the cutback in supply. According to the same report, "During the years 1930 to 1932, there was a pronounced and steady decline in prices of approximately 50 percent."

Oppenheimer was able to close down his own mines, but he could not prevent newly discovered diamond mines in the Belgian Congo and Portuguese Angola from continuing to produce diamonds. Even though there was no market for these diamonds, De Beers had to continue buying them up through its Diamond Corporation in London to prevent them from being dumped on the market. To finance these diamonds, De Beers issued bonds.

By 1937, De Beers' stockpile of diamonds had grown to some forty million carats- which was, even in pre-Depression times, nearly twenty years' supply. Oppenheimer's empire, which had invested millions of dollars in borrowed money in these diamonds that could not be sold, was now itself on the verge of bankruptcy. According to one United States government report, Oppenheimer was even considering dumping several tons of these diamonds into the North Sea to prevent them from reaching the market in the event that his company was forced into liquidation by his creditors.

Oppenheimer was saved from having to implement this radical solution to the oversupply problem by the invention of the diamond grinding wheel. In essence, the wheel was a metal-grinding surface impregnated with crushed diamond powder that permitted a quantum leap in the mass production of automobiles, airplanes and machinery. Steel dies and machine tools had always been used to cut precision parts for industry. As steel blades had to be constantly honed or changed, the production of standardized parts moved at a slow pace. In the early 1930s, the Krupp Company in Germany developed a tungsten carbide alloy that was far more resistant to wear than steel. Before tungsten carbide dies and blades could be adopted by industry, however, some means had to be found for shaping them. Diamonds proved to be the only material hard enough, and the diamond grinding wheel thus became an indispensable tool for mass production.

Instead of jettisoning the small and poorly crystallized diamonds, called bort, into the sea, De Beers began crushing them into powder and supplying them to the automotive, aircraft and machine tool industry. With Europe rearming for war, millions of tons of this powder could be profitably each year. Oppenheimer immediately saw the potential of "Industrial diamonds."

Oppenheimer realized that controlling this vital supply of industrial diamonds was necessary to protect the power of his cartel. He was especially concerned about the Forminiere Mines in the Belgian Congo, where black, poorly crystallized diamonds could be mined by the ton rather than the carat. He wrote his son Harry: "There can only be one policy for Dc Beers .... make sure of this Congo production even if the Forminiere diamonds have to be bought in addition [to bort] .... Forminiere will dictate the post-war policies Of the diamond trade. By controlling the Congo production De Beers will maintain its leading position in diamonds." To assure that these crucial mines in the Congo did not slip out of De Beers' control, Sir Ernest negotiated what amounted to a private treaty with the Belgian government. In return for guaranteeing that the Forminiere Mines would sell all its bort to a De Beers subsidiary in London called the Industrial Diamond Corporation, Oppenheimer agreed to provide the Belgian cutting industry with the lion's share of diamonds from all of De Beers' mines. London would have a complete monopoly on the distribution of diamond powder, and Antwerp, which employed some 20,000 cutters, would remain the preeminent center for cutting diamonds. Working through the Belgian banks, Oppenheimer further insured his leverage in the Congo by buying a large block of stock in a Belgian holding company called Sibeka, which owned controlling shares in the mines in the Congo. Pierre Crokaert, a Belgian financier whose family's banking intcrests were closely allied with those of Oppenheimer's, became a board member of De Beers and a deputy to Oppenheimer. He undertook the responsibility for regulating the production of diamonds from the Congo in accordance the quota set by De Beers. With the completion of this arrangement with the Belgians, De Beers became an international cartel.


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