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.
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
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
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
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
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
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.
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.
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.
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
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."
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
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
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.
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
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