This relates to the question of Unit 1 of ECON 103:
Why is an ounce of diamond much more expensive than an ounce of water? Water is essential for survival, but diamonds are non-essential.
The expected answer from Austrian economics, I suppose, is that marginal analysis tells us that if we have the usual abundance of water, the value of the next ounce of water is near zero. Whereas if there is the usual scarcity of diamonds, the value of the next diamond is very high.
However, based on my understanding of the history of the diamond trade (which admittedly is based on a single documentary that I saw years ago), diamonds’ value is highly artificial, because both their need and their scarcity were engineered.
On the one hand, the diamond cartel executed an incredibly successful marketing campaign to ingrain in people’s minds the image of diamonds as the standard token of love and commitment a man must give to his woman to ask for her hand in marriage. So, a previously useless trinket was masterfully inserted into the deepest “biology” of the human species: it became a keystone element in the mating ritual.
On the other hand, the diamond cartel succeeded in acquiring nearly the entire global production of diamonds, thereby largely controlling the market supply. They were able to make the good scarce (and hence “economic”) by releasing only a small fraction of the diamonds onto the market. There is also a strong fashion component within the market, by which certain types of diamonds are made more desirable some years, and then less again, carefully engineering the supply to jewelers.