Are Diamonds Really Forever?

This is a short single-author economic essay: Rothbard treats the DeBeers diamond system as a case study in cartel theory, monopoly, and state privilege. Its scope is narrow but polemical: the apparent permanence of the international diamond cartel is explained not as a triumph of free-market monopoly, but as the result of political enforcement, now endangered by recession, Angolan wildcat mining, and strains within the cartel’s own quota system.

The international diamond cartel, the most successful cartel in history, far more successful than the demonized OPEC, is at last falling on hard times.

Rothbard’s central move is to begin with the empirical anomaly: DeBeers seems to contradict the standard free-market claim that cartels are unstable. It has long restricted supply through its Central Selling Organization, thereby sustaining prices above competitive levels. Yet Rothbard immediately insists that even a strong cartel remains vulnerable to demand. Recession and reduced American purchases expose the fact that monopoly power cannot abolish consumer choice.

Even an unchallenged cartel, of course, does not totally control its price or its market; even it is at the mercy of consumer demand.

The essay then turns from conjuncture to theory. Rothbard restates the classical anti-cartel argument: restricted output creates incentives for cheating from within and new production from without. DeBeers therefore requires explanation precisely because it has lasted so long. His answer is the essay’s thesis: the diamond cartel did not survive because the market naturally produced a stable monopoly, but because political power suppressed competition.

The answer is simple: the market has not been really free.

South Africa supplies the institutional mechanism. Rothbard argues that nationalization of diamond mines, state licensing, and enforcement against “illegal” producers transformed what would otherwise have been competitive mining into a politically managed monopoly. DeBeers and compliant firms received access; independents were criminalized. The essay’s conceptual contrast is sharp: monopoly is not the result of private property and exchange, but of their suspension.

In short: the international diamond cartel was only maintained and has only prospered because it was enforced by the South African government.

Rothbard extends the argument internationally by noting that the Soviet Union, despite possessing new diamond supplies, cooperated rather than competed. The point is not ideological surprise but institutional affinity: a monopolist state found it natural to bargain with a monopolist cartel. The deeper structure of the essay is thus comparative: free competition tends to dissolve cartels, while states—South African, Soviet, Angolan—can either enforce or fail to enforce cartel discipline.

The turning point is Angola. Rothbard identifies three converging disruptions: the end of civil war weakened central control, independent prospectors gained access to the Cuango River, and drought exposed alluvial deposits. The problem for DeBeers is not merely excess supply but unenforceability. When private prospectors and armed demobilized soldiers occupy diamond territory beyond state control, the political foundation of cartel pricing breaks down.

If you fly a patrol over the province you can get shot down by a missile. And it's a 100-mile river. You can't put a fence around it.

This passage matters because it compresses Rothbard’s whole argument into geography and force: monopoly requires exclusion, and exclusion requires enforceable boundaries. Where the fence cannot be built, the cartel must either buy up the excess or watch prices fall. DeBeers’s costly purchases of “illegal” Angolan diamonds, its inventory buildup, dividend cut, falling share price, and forced 25% reduction in cartel sales all show the fragility that cartel theory predicts.

Such a large cutback sets the stage for individual firms to sneak supplies into the market and evade the cartel restrictions.

The essay ends by returning to the instability of cartel arrangements. Reduced quotas create stronger incentives to cheat; Russia may be tempted toward open-market sales; consumers stand to benefit if supply escapes cartel control. Rothbard’s relevance lies in using a familiar luxury commodity to make a broader Austrian-libertarian claim: durable monopoly is not a natural market condition but an artifact of coercive barriers, and when those barriers weaken, competitive forces reappear.

With luck, however, the forces of free competition—as well as the world’s consumers of diamonds—may triumph.