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Diamonds Commercially

( Originally Published 1911 )

FEW people recognize the influence which the diamond has had in the world's affairs. Generally it is regarded as a bauble simply: a star to shine in the lighter realms of love and pleasure, but outside the plane of rugged forces which are supposed to govern the serious interests of life. Yet a moment's reflection will convince one that love and pleasure are most potent to set in motion the machinery of stern action. The loves of rulers, many of therm illicit, have cost nations as much blood and treasure as the establishment of great principles, and the march of armies has often been delayed to wait on the pleasure of a potentate or general. A voluptuous queen of conquered Egypt toyed with the power of Rome; the favorites of the King bent the knees of France's nobles, wasted her substance and enslaved her people. Since the beginning, man has lived for pleasure in some form, and whether good or bad, love has been one of its chief sources, and in the realm of love the diamond has been for centuries very powerful.

But not alone thus indirectly has the diamond been a serious influence in the earth, but as a direct lure to greed, Nature has by it broken down the barriers against progress, and kept in fermentation the life of the world to clarify it. The narrow bounds of Hindu principalities were periodically scattered by one raiding the treasure house of another, thereby weakening in the process ignorance and prejudice, and leveling a racial plane on which to build a greater India. The Persians looted Delhi. The Afghans robbed Persia. Greece and Rome overran them all, the chief incentive in each case plunder, in which the diamond shone most alluringly. Later, England sailed the seas for the fabulous wealth of the Orient; Spain sent her adventurers to the new hemisphere of the West; the world gathered at the mines of Africa, and in all, the diamond was one of the forces that moved them.

It is difficult, in these prosaic times, to realize the feelings of the Ancients in their regard of the diamond. It was held in awesome reverence by the multitude, and by a reflex action, in a lesser degree by those who owned them. Nor did familiarity breed contempt in the minds of the possessor, for his possessions were desired by all his peers, many of whom were ready to barter great things to gain them. A great diamond gave renown to the prince who owned it. It was a lustrous sign of his power and wealth, bruited farther than his deeds. And it was a reserve fund in emergency. With it he could raise troops, win powerful friendships, and wield influence with men who then as now flock close to those who have what they have not. Travelers and traders told of its magnificence, and the hearers vied with each other in swelling its glories and value when they retold the story. Far-off monarchs despatched embassies to negotiate for it, as for something of national importance, and the lives of subjects were not counted if their sacrifice would gain it. How must the people regard a thing which lying in the palm of a hand, was reckoned of more value than their lives by him who commanded them? If he said, " Fill the breach mine enemies have made to get my diamond, with your bodies," they must do so.

His diamonds were to the old-time prince of the Orient and are somewhat so to-day, his fortune. Having no system of usury, valuables were hoarded, and of them the diamond was the most concentrated form of wealth, taking but little space for storage, and easily transported in time of danger. To the rajah, his treasure chest was as lands were to the feudal barons, or as his investments are to the money-king of to-day, except that it bore him neither rents nor interest. He met his current expenses by making levies upon his people; if his people failed him, he had his treasure-chest.

Some of these ancient conditions still surround the diamond to-day. Princes of the Orient by hereditary instinct acquire and hold jewels with old-time tenacity, though many of them are learning the modern method of making investments yield an income. Men and women the world over, yet see diamonds through the mists with which ancient superstitions and reverence hallowed them, but beyond this, they have of late acquired an important place in the commerce of the world as a staple product. When the diamond fields of India and Brazil were the chief sources of supply, there was a constant uncertainty, the fever of an unknown quantity, arising from the irregularity of the yield and instability of price. A definite idea in the public mind of value was impossible, for buyers, like the supply, were limited and spasmodic. The African mines, and the development of the United States, have changed this condition. The supply of diamond-bearing earth apparently is in-exhaustible. The yield is so even that the average weight of diamonds that will be found in a given quantity of earth, from the mines individually and collectively, is known beforehand to the fraction of a carat. The output can be regulated with the exactitude of a factory, and as the principal mines have been all under the control of one syndicate, deliveries and price could also be adjusted at will.

With the control practically of the diamond output of the world, the Anglo-African syndicate began to sort and grade the rough closer, until now no staple is more closely sorted than are African diamonds, and the price set on them has been absolute and indisputable. The keen system which governs the present marketing of diamonds is destructive of the sentiment and romance which was once so characteristic of the business. It has robbed it largely of the element of uncertainty which aforetime appealed so strongly to the gambling instinct of the trader. It has also raised the traffic to the dignity of a staple of commerce. The enormous production of these later years, and the wider sale for diamonds which has resulted from the strenuous and successful exertions of the world during the last decade to create and ac-cumulate wealth, have combined to make the diamond an important item in the trade of the world. Twenty-five years ago, few jewelers in the United States carried diamonds in stock; to-day there is scarcely a jeweler in the States, even in remote hamlets, who does not carry some, and jewelers of prominence carry an average of from one hundred thousand to a million dollars worth. Nearly forty million dollars worth of various kinds were imported into the United States during 1906. As many of these were uncut, the value of that portion of them was largely increased after their arrival.

A large proportion of the diamonds sold in the United States, pass, in the beginning, through comparatively few hands. Some by way of cutters, who import rough diamonds and cut them here. As the diamond syndicate sells the rough in large parcels for cash, and will give a" sight," as the opportunity to look at the original lots from Africa on arrival in London is termed, to but few, these firms must be strong financially, and well equipped to handle the rough, and market the finished material. This means that they must not only have considerable capital, but good banking facilities, a large shop, and a connection with large buyers. There are a number of smaller cutters who could neither get a " sight " in London, nor handle the parcels offered, if they could. These depend on the irregular offerings of independent miners, for their supplies, or on the odd stones and small lots thrown on the market by firms who do buy at first hands.

The large cutters sell their product to importers and jobbers usually. Some divide their original parcels, and apportion the division among firms generally supposed to be cutters, but who do not actually own or operate the cutting shops. One firm cuts fine material only, as perfectly as possible, regardless of the loss of weight necessary to secure exact faceting and the proper outline and proportions. A few large retailers who have customers willing to pay very high prices for stones which are unquestionably superior in every way, take the output of this shop.

Importers buy most of the diamonds they handle of foreign cutters in Amsterdam, Antwerp, London, and Paris, and sell what they import, as far as possible, in the original parcels. Some of the lots, they assort for size and perfection to suit small wholesale dealers and retailers. Exceptionally fine stones are often separated and sold singly at an' individual rating which accords with the fineness of color, degree of perfection, and size. The buyers for these houses visit the markets of Europe once or twice a year, and a few of them keep an agent most of the time in London, from which city they make occasional excursions to the continent as may be necessary.

During the last ten years, a considerable quantity of diamonds has been imported by retailers. The reputation of making importations direct, the expectation of buying cheaper, and the buyer's desire for a foreign trip, have been the inducements, and the flush times made it possible. Generally, such buyers gain no advantage in the cost of their purchases : oftentimes, after expenses have been included, the goods cost them more than if bought here. With little experience and knowledge of foreign methods, and buying under conditions to which they are unaccustomed, these occasional visitors to European markets, frequently overload themselves with goods unsuited to their trade, and pay prices actually in excess of those demanded here, though apparently less. If they buy original parcels of mixed sizes and a wide range in degree of perfection, they are seldom able to gauge the average value : if they insist on assorted goods, they pay fully as much minus the duty which they pay later, as they would in their home market, and to which must be added the cost of the trip to Europe. As the people they sell to, know less about the goods, they succeed fairly well in marketing them at a profit, and as long as trade is sufficiently good to warrant the expense, such buyers will probably remain convinced that the annual trip to Europe is a good stroke of business.

Importations of this character have been sufficiently large of late years to materially affect the price of goods on the other side. When the markets are full of buyers who do not know inside values, Europeans are not slow to take advantage of the situation. While they are able to sell to men who have cash in hand, at large profits, it is difficult for the dealers who are buying to sell to the same trade„ to get bottom prices against such competition. In this way cutters and second-hand dealers in Europe have been enabled to get very profitable prices, of which the syndicate, noting it, took advantage and periodically raised the price of rough to correspond. Of course the tremendous increase in the price of diamonds during the past ten years must be charged primarily to the control of the mines by the syndicate and to the general prosperity of the world and of the United States in particular, for the States use a majority of the African diamonds mined, nevertheless the flood of small and reckless American buyers in Europe, has undoubtedly assisted the diamond syndicate to a large degree in their policy of steadily advancing the price of diamonds.

The importance of the diamonds themselves as an item of commerce is however but a small part of their influence commercially. The influence is much more far-reaching. From 1652, when the Dutch made a settlement at the Cape of Good Hope, reenforced later by three hundred Huguenot emigrants, until 1814, when by right of conquest and purchase the Cape Colony be-came a British possession, South Africa was but sparsely settled by Europeans for about a hundred miles inland. In 182o, five thousand British emigrants were added to the settlement. Later, many of the Dutch, to escape British rule, trekked to the north, and by 1854, with indomitable spirit and their guns, shot out of the wilderness a clearing among the savage Zulus for two great States, the Transvaal and the Orange Free State. These and the Cape Colony progressed slowly, but in all the interior, the Boer farmers were thinly scattered over vast tracts of land, and lived a primitive life that knew nothing of the great and busy world beyond their sequestered confines. And all around, Zulus, Basutos, and Hottentots lived in the ungoverned and unknown wilds of savagery. Then came the discovery of diamonds in 1867. Soon the fact was noised abroad; the colonists began to flock to the interior where the discovery was made. Adventurous spirits from the British Isles, from France, Germany, the United States, and remote places of the earth, turned their faces toward that center of at-traction. Impoverished sons of noble families, trading Jews of Houndsditch, rough, strong sons of toil, keen, shrewd Yankees, men of all races, types, religions, and politics, gathered to the magic sound of " diamonds." By 1870 there were ten thousand of them searching for the precious pebbles in the Vaal River. They found the diamond-bearing ground of Kimberley in Griqualand, and a town of 30,000 inhabitants had come into existence there among the wilds two years later. Since then others have been built and now, where wild beasts roamed at will with a few drifting tribes of savages in a country remote from civilization, one can see the most modern equipments for business and the household, and the best and most scientific mining machinery that the world could devise and build. In twenty-five years the diamond did more to build a new empire, than the pioneers of the most vigorous and tenacious races the earth has ever known, had succeeded in doing in over three hundred years.

The lure of the diamond in Africa has raised a new generation of wealthy men, begun a new empire, ground together a number of antagonistic individuals into a coherent nucleus for a new people ; it has encouraged scientific research, stimulated engineering skill, developed great natural resources' and uncovered others. By its magic, hitherto almost inaccessible stretches of the earth have been added to the habitable world, thousands of savages are brought to a better understanding of life and made amenable to the laws of civilization, and as the precious pebbles pass from one to another until they bring delight to the final possessor, from the Hottentot laborer in the Compound, to the fair hand of plighted troth, they leave in the passing a betterment of conditions to all.

Another commercial phase is their value as a concentrated form of wealth. Somewhat of the Oriental idea of diamonds as a safe and enduring value prevails with most people. Comparatively few of the general public, in buying them, lose sight entirely of their exchange value. Many buy them as a luxury only because they consider them as good for money in case of need. In good times they tell with dazzling emphasis the success of the owner; in times of stress they are a quick asset or unquestioned collateral that re-quires no search or legal documents, but is always ready to tide him over. This idea often leads to surprise and dissatisfaction. It is no uncommon thing for a person to bring to Maiden Lane a diamond for sale, with the confident expectation of receiving as much money for it as he paid in a retail store. So strong is this idea of it as a thing of staple value, that the items of profit for the various handlers are lost sight of, and these profits are necessarily considerable.

Large as the diamond trade is, the sale of precious stones is comparatively slow. They cannot be turned into money at their market value at will like silver, wheat and other things in constant demand. And being a commodity of slow and irregular sale and of great price, the margins of profit are sometimes greater. If there-fore, a diamond bought at retail is brought to a cutter for sale, the profits of the retailer and the jobber must be deducted. The cutter estimates it at what he could produce it for, less a further percentage should the stone be undesirable in any way for his particular stock. This rule applies to any stage of the trade, and it follows therefore, that the retailer can afford to pay more than the jobber, and the latter more than the cutter. Not-withstanding the loss entailed in the disposal of a diamond by sale to a dealer, there is probably no other thing outside of staple commodities which will hold value as securely and long, or can be turned into money as readily as the diamond. At a forced sale it will realize more in proportion to its value, on an average, than real estate even.

Since the diamond syndicate secured such perfect control of the trade, the profits, after the diamonds leave first hands, have been much curtailed. Cutters will sell large parcels to houses of undoubted credit for a net profit of five per cent., after deducting interest on the note given in payment. Importers will sell on time for a profit of eight to fifteen per cent., according to the commercial standing of the buyer and the length of time given. Retailers of the East will not average over twenty-five per cent. profit. As cutters and importers sell on six to ten months' time, and sometimes spread a large bill, by a division of the amount in notes bearing no interest, over a period of from six to eighteen months, it will be seen that quick sales, large amounts, and good judgement in credits, are necessary to successful business.

The frequency with which the syndicate has advanced the pi-ice, has been the diamond dealers' good fortune during the past ten years. Never sufficiently large to check trade — the advances have usually been five per cent., occasionally seven and one half per cent.— they have stimulated trade with a money-making public, and encouraged speculation among dealers, who were able to market the goods and make at least part of the advances in addition to regular profits. Curious anomalies have arisen from the conditions. During that period, small dealers, who buy about once a year, have frequently found when the time came to lay in their stocks, that to duplicate what they bought last, they had to pay as much for stones as they were selling them for at retail; in some cases more.

As the retailer does not usually turn his stock of diamonds more than once a year, his profits are, comparatively, less than most staples which are turned more frequently at a smaller profit, and they are actually less than the percentage of profit afforded by many of the necessities, as shoes, scarves, and clothing both for male and female wear, and a large number of foodstuffs.

In ordinary times the diamond trade is not a money-making business. The volume of sales, compared with the stock necessary to do the business, entails an interest account which eats up a large part of the profits. Panics usually find the dealer with a large stock on hand, and notes out for a considerable part of it. As a result, much of the money made during the flush period preceding, melts away before all the notes are paid.

Good-sized fortunes have been made in the States out of diamonds, usually by shrewd importers who have been able to extend large credits to jobbers and retailers who were better able to market the goods than to finance their affairs without the assistance of the firms from whom they bought their stocks. In carrying such ac-counts, the importer not only makes larger profits, but a constant income from renewals of notes, as he can generally borrow for one or two per cent. less than the six per cent. he charges. The method is about as follows: the importer noting a wholesale or retail jeweler of moderate capital who is doing a good business and whose character is good, approaches him with an offer of large credit and long time, payment to be made by notes, but with a promise of assistance if the buyer is not able to meet them when due. It usually happens that the assistance is needed. The renewal notes are discounted at six per cent., and re-discounted by the importer after he has placed his name on the back, at four to five per cent., and from that time on he has a good customer at profitable prices. Some good salesmen never escape this condition of dependence; others do, but the importer generally has enough such customers to insure an outlet for a considerable amount of goods, and even if the buyer graduates into the class able to pay bills when due, the former relations have begotten a confidence which inclines him to buy, other things being equal, of the man who formerly assisted him to establish himself.

For several reasons the import trade is done principally by Jewish firms. They constitute about eighty per Cent. of the number who regularly import diamonds into New York, and have headquarters in that city. The total number of importers is about sixty. Of these about thirty-one are importers whose volume of business entitles them to be reckoned as of the first class, and twenty-nine smaller houses may be termed of the second class, Two-thirds of the first class and over ninety per cent. of the second class are Hebrews. This does not include a number who class themselves as importers though they seldom import direct, but usually buy through a large house, either here, or on the other side, and have the goods forwarded through the Custom House to the importer in New York, who pays the duties and makes an American settlement with the buyer. Nor does it include some who occasionally import small lots, and foreign dealers who visit New York irregularly.

Large retail dealers, some of whom import heavily, are also not included.

Most of the men of whom the Jewish firms are composed, are of foreign birth, whose home training and connections had familiarized them with the trade and industry at the source of supply. Many of them began business here as importers of Swiss watches, or jobbers of jewelry, and, quick to see the trend of affairs, added diamonds when our flourishing conditions brought an increasing demand for them. As the demand for diamonds increased and Swiss watches were displaced by American, and the manufacturers of jewelry began to sell to the retail trade direct, they discarded the inferior lines, and concentrated their capital and energies upon diamonds alone.

Being in line with the business by their European training and connections, is undoubtedly the chief cause for the preponderance of the Jewish element in the trade here, but there are other reasons. The trade is one that appeals to the Jew. There is an element of uncertainty in it. Every transaction must be fought out individually for profit, and the profit is an unknown quantity until the deal is closed. For centuries, in most countries, many avenues of life, into which the struggle for supremacy among men tempts the adventurous, have been closed to him, and he has been obliged to try his mettle in the more peaceful contests afforded by trade. Into the sale of a bill of diamonds he puts the soul of a duelist. It is not alone for the money in it he seeks to get a good price, but to win in the battle of wits. Like the man of the sword, he feints with wrist and eye ; attacks, retreats, allures and uses every artifice he has learned, to gain the advantage of his adversary. If he wins, the stakes are appreciated, but it is upon the conquest he plumes him-self. If he loses, he honors the man that withstood him.

Another reason for the success of the Jew in this as in other trades, is his quick recognition of merit in those who serve him, and willingness, when the demand is en-forced, to share the profits of the business with those who assist him in making them. Liberal in expenditures, he will allow his subordinates to spend any amount necessary to get business which eventually shows a profit, and though he will drive as hard a bargain with them as with others, he will pay a profit-winner who insists, more than a man of any other class will, to hold his services. Practically the Jews are the most democratic of all people. They gauge a man by what he can do. Name, birth, breeding, learning even, count but little, in their estimation, for the man who cannot himself do things; they count nothing against him if he can. The office boy who demonstrates that he can sell goods is immediately treated with the consideration due to a salesman ; his former insignificance is at once forgotten.

In this way the senior members of their firms gradually withdraw to the rear where they hold the reins of finance, while the van of active business is held by a young working force in touch with present conditions and who have learned how to do business, not by school and luxury, but by work and experience. A Jewish firm may last many years, but it seldom grows old or in-firm. Add to these qualifications, an unbounded capacity for work, and an almost instinctive understanding of the principles of finance, and the fact that the important end of the diamond business is largely in the hands of the Jews in this country, is explained.

The diamond has been a great commercial influence, not only by opening new territory and thereby largely increasing the demand for other products to supply the needs of new and increasing commodities, but it has become a valuable assistant in the development of important modern staples of commerce. Bort and carbonado, the semi-transparent and crypto-crystalline diamonds, though useless for gem purposes, are used extensively in processes of manufacture where great resistance to wear and tear is requisite. These are used to saw marble, granite, and other hard stones; to drill and bore in mining and similar operations, and from the refuse of gem crystals are made draw-plates for drawing the fine metal wires so necessary for electrical supplies. The supreme hardness of the material enables the manufacturer to draw great lengths of wire without the slightest variation of gauge through the enlargement of the holes, as would be the case with a plate of hard metal. It is a curious fact worthy of attention in passing, that, as needs arise in the evolution of man's mechanical skill, Nature presents some new form of supply adequate. Simultaneous with the tremendous development of mining, tunneling, and the application of scientific discoveries to practical purposes during the past fifty years, the diamond fields of Africa and the carbonado fields of Bahia, containing vast quantities of material suitable for the requirements of those conditions, were discovered and developed. Similarly, the yield of gem stones has been abundant for the demands of an era of unprecedented prosperity. The abundance of Nature is such that no demand of man can arise for which there is not a possible supply. If he needs heat, and the sun's rays are insufficient, he learns to kindle fires and get the needed heat by burning wood ; as the wood fails, he discovers coal; before the coal measures are exhausted, he finds there is a full supply to be developed from electricity, and so on. It is not possible for a man to need more than Nature can supply, and in fact most if not all of man's needs, are created by the supplies which surround him. Supply and demand are the working phenomena of the principle in Nature which constantly scatters and re-unites the elements, making out of heterogeneous masses, homogeneous combinations and vice versa, thereby insuring the continuity of life and progress.

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