Competition from Brazilian
India's monopoly on the supply of uncut diamonds to Europe was broken in 1728. 1 A few years before, diamonds had been discovered in Brazil. The discoverers did not at first realize the nature of their find; a consignment of stones from Brazil is said to have reached the Dutch consul at Lisbon, who sent them to Amsterdam, where they were recognized as diamonds. 2 The diamonds were found in the area of Minas Geraes, north of Rio de Janeiro, where many goldmines were also located. A diamond rush soon developed and large consignments of stones reached Lisbon.
The diamond, being a typical item of luxury, is extremely sensitive to the fluctuations of supply and demand. In times of adversity the demand for jewellery naturally drops sharply and people will even tend to sell what they possess. On the other hand the value of the diamond stands in direct relation to its scarcity, and any sudden increase in supply brings prices down. Until the discovery of diamonds in Brazil there was a natural regulation of supply, resulting from the limited output of the Indian mines and from the concentration of diamond imports in the hands of a small group of London merchants, the size of whose orders were determined by the demand for stones in Europe. It may be assumed that the gradual increase of imports from India was balanced by a growing demand for diamonds and precious stones in Europe, with its increasing affluent middle class. But the great quantity of diamonds which suddenly reached Lisbon in 1728 3 threw the European market into a turmoil and played havoc with the Anglo-Indian diamond trade. Twenty years later a diamond expert, David Jeffries, commented 4 on this event as one 'which occasioned many, even of the most capital traders in London, to believe that diamonds were likely to become as plenty as transparent pebbles; and they were so far influenced by this opinion that most of them refused to buy diamonds on any terms'.