De Beers’ collaboration with the Third Reich. Proof.

The response to the article “Sanctions on diamonds and smuggling of strategic materials: historical aspect” showed the readers’ keen interest in very tense moments in the history of the diamond market. Therefore, we considered it necessary to elaborate and detail the points of the article published.

The history of the Third Reich has been studied by experts representing a wide range of disciplines - from political science to rocket and missile engineering - for almost eighty years. The bibliography of the studies of the Hitler regime in all its manifestations comprises thousands of publications. But against the background of this scientific literature ‘abundance’, two simple questions still remain unanswered. How many industrial diamonds did the Axis powers import during World War II? And what companies supplied rough diamonds to them?

At first glance, these are simple questions, and it is the De Beers Corporation which should give comprehensive answers. The diamond market from 1933 to 1945 was extremely monopolized and De Beers controlled it almost completely, and therefore, it is hard to believe that the company was not aware of all the details of the industrial diamond traffic. But the De Beers company still keeps silence, and the lack of information from this competent source leads to all sorts of speculations based on fragmented and generally dubious data. Moreover, fundamental works on the history of the Third Reich published in the 21st century create the impression that the topic of industrial diamond supplies to Hitler’s Germany is under a taboo for English-language authors working within the scientific mainstream. Thus, in 2006, the prestigious Penguin Books publishing house got out a monograph by John Adam Tooze, the English historian and professor of Columbia University, entitled “The Wages of Destruction: The Making and Breaking of the Nazi Economy”. The monograph was included in the list of ‘books of the year’ according to the opinion of The Financial Times and The Economist, received several prestigious historical awards (Wolfson History Prize, Longman History Today Awards, Los Angeles Times Book Prize for History) and enthusiastic reviews written by leading British and American experts in the history and economy of the Third Reich. However, the word ‘diamond’ was not mentioned even once in this huge (over 750 pages) and, without a doubt, the most comprehensive study of the Nazi economy ever published.

An attempt was made in this article to correct the current situation and add a number of clarifying details to the state of the diamond market during the Third Reich’s existence that allow us to give answers to the above questions.

By the time Hitler came to power and established a fascist dictatorship in Germany, the world diamond market was a full-fledged monopoly. In 1934, the Diamond Trading Company (DTC) was founded that controlled up to 95 percent of global diamond sales. DTC was 100-percent owned by the Diamond Corporation, which in turn was 80-percent owned by De Beers Consolidated Mines.

At the same time, industrial diamonds began to play a key role in mechanical engineering, primarily in engine manufacturing. In 1925, German company OSRAM received a patent for a superhard material that was an agglomerate of tungsten carbide and cobalt. The patent was purchased by the Krupp company and the new material was brought to market in 1927 under the WIDIA trademark (WIe DIAmant - like a rough diamond). In 1928, production of WIDIA analogues was launched in the USA, and in 1929 - in the USSR. With the advent of such materials, a revolution in metalworking occurred because the speed and precision of steel cutting increased by orders of magnitude. But diamond tools were required for sharpening and finishing cutters made of WIDIA and similar materials. In 1932, Dutch engineer Peter Neven patented a technology for manufacturing diamond abrasive tools for the mechanical engineering, optical, and stone processing industries. The production process involved mixing industrial diamonds with metal powders, heating the mixture to its sintering point, and subsequent pressing. Neven’s technology gave rise to a rapid growth in manufacturing of diamond tools in the most technologically advanced countries, primarily in Germany and the USA. The diamond tools made it possible, in particular, to hone the inner surfaces of internal combustion engine cylinder blocks - as well as various hydraulic and pneumatic devices - and achieve a surface finish several classes higher than when using conventional abrasives, which significantly increased the service life and capacity of component parts and units. The coming war was expected to become a ‘war of engines’, and it was the diamond tools that made it possible to design and manufacture engines for combat vehicles with required characteristics.

By the beginning of World War II, Germany had become a world leader in using industrial diamonds and manufacturing diamond tools. In 1938, Germany’s imports of industrial diamonds were estimated at 1,700,000 carats, while United States’ imports were 1,400,000 carats. From that year (the last pre-war year), statistics on the supply of industrial diamonds to Germany were not available to the public. In any case, in the directory “The Mineral industry of the British Empire and foreign countries. Statistical summary (production, imports and exports)’ published in London in 1939 by the Imperial Institute, neither Germany nor Japan was mentioned in the ‘Diamonds’ section. The reasons are clear: the fascist regime was intensively ‘pumped’ with strategic raw materials by the diamond monopoly and its sightholders headed by ethnic Jews. While the content of ‘Mein Kampf’, a bestseller of 1926, could - up to a certain point - still be perceived as the feverish delirium of a poorly educated fanatic, the Nuremberg racial laws adopted in 1935 which deprived German Jews of all human rights left no doubt about the future intentions of the Fuhrer and his supporters. Nevertheless, industrial diamonds were freely supplied from London to Germany from 1935 to 1938, which drew the justified indignation of many fellow homelanders to the diamond monopoly’s owners, and created reputation risks for the company. So, immediately before the war, De Beers introduced a ‘regime of silence’ that lasted throughout the years of the Third Reich and still exists to this day.

The ‘regime of silence’ turned out to be extremely effective. It must be acknowledged that two generations of historians who studied the economy of the Third Reich were unable to obtain accurate figures on Germany’s and Japan’s imports of industrial diamonds during the World War II, despite the fact that the archives of Hitler’s Germany and Imperial Japan are open and have been studied in detail. Estimates of the industrial diamond traffic found in the literature fluctuate from 0.5 mn to several million carats per year and, due to this spread, cannot be considered reliable. But in this case, the absence of exhaustive documentary evidence does not mean that it is impossible to solve the mystery.

One of the CIA’s analytical memoranda from the mid-1950s devoted to rough diamond smuggling had an interesting idea of ​​calculating the industrial needs of a technologically developed country (the memorandum was about the USSR) for industrial diamonds based on the steel production in that country. The US intelligence analysts relied upon a simple approach: since the figures of steel production and USA’s imports of industrial diamonds were known, it was possible to determine the quantity of imported rough diamonds in carats per ton of steel produced just using simple calculations such as division. Having obtained this coefficient (α) and knowing the steel production figures in the country under study (this parameter had never been classified in the USSR, unlike any statistics on rough diamonds), it was possible to make calculations by the inverse method and divide the amount of steel produced by coefficient (α) obtained in order to determine the quantity of industrial diamonds consumed by the industry of the country under study. The estimate was rough of course, but it was good enough to get a general understanding of the matter.

The methodology had a number of assumptions that ultimately made it unsuitable for calculating these figures in the USSR:

- the country under study should be a net importer of industrial diamonds;

- the level of technology, at least in the military-industrial complex, should roughly correspond to the level of technology in the USA;

- the range of diamond tools manufactured should correspond to that in the USA.

In the first half of the 1950s, the USSR met the first two requirements, but did not meet the third one. Industrial production of diamond tools (except for the simplest ones, such as glass cutters) did not exist in the USSR until 1959. All demand for diamond tools was satisfied by imports from free markets, but it was obviously impossible to calculate the imports of diamond tools in carats.

But Germany and Japan during World War II fully met the requirements of the methodology discussed in the CIA’s memorandum. The application of this simple and elegant solution gives the following results.

Table 1. Steel production in the USA

Products/years	1940	1941	1942	1943	1944
Steel (mn tons)	78.0	75.2	78.1	80.6	81.3

 

Table 2. Actual USA’s imports of industrial diamonds

Imports/years	1940	1941	1942	1943	1944
Industrial diamonds (mn cts)	3.8	6.9	11.2	12.1	12.6

 

Table 3. Arms production in the USA

Products/years	1940	1941	1942	1943	1944
Aircraft (1,000 pcs)	n<1	1.4	24.9	54.1	74.1
Tanks and self-propelled guns, SPGs (1,000 pcs)	n<1	4.8	24.4	24.1	29.0
Artillery weapons (1,000 pcs)	n<1	3	188	221	103
Machine-guns (1,000 pcs)	n<1	20	662	830	799
Capital ships (pcs)	-	544	1854	2654	2247

 

Table 4. Coefficient (α) - steel/rough diamonds

(α)/years	1940	1941	1942	1943	1944
Steel/rough diamonds	20.53	10.80	6.97	6.66	6.45

 

It should be noted that in 1940 and the first half of 1941, the US military-industrial complex was in ‘lethargy’ and became very active shortly before Japan’s attack on Pearl Harbor (December 7, 1941) and USA’s involvement in WWII. US defense industry has become the main consumer of steel produced in the country from 1942 - before that, a significant part of the metal was exported. The imports of industrial diamonds were low in 1940 due to the minimal defense order, and it grew in 1941 due to the intensification of the military-industrial complex’ operations and reached a consistently high level from 1942 to 1944 when arms production reached its peak. Therefore, the data for 1940 and 1941 are excluded from further consideration as uncharacteristic of a mobilization economy. The average value of coefficient (α) for the period from 1942 to 1944 is 6.7 and it will be used for further calculations.

Table 5. Steel production in the Axis powers and occupied countries (mn tons)

Countries/years	1940	1941	1942	1943	1944
Germany	21.540	20.836	20.480	20.758	18.318
Austria	0.766	0.804	0.897	1.054	1.013
Hungary	0.750	0.782	0.784	0.776	0.530
Italy	2.258	2.063	1.934	1.727	1.026
Czechoslovakia	2.265	2.316	2.332	2.514	2.543
Poland	1.168	2.005	2.091	2.440	1.950
France	-	4.310	4.488	5.127	-
Belgium	-	1.624	1.380	1.670	-
Luxembourg	-	1.249	1.569	2.159	1.269
Japan	6.855	7.567	8.004	8.838	6.444
Total	35.602	43.552	43.959	47.063	33.093

 

Table 5 does not include the data on steel production in some small countries occupied by Germany and the data on steel imports from neutral countries. The data for 1940 for France, Belgium, and Luxembourg were excluded from the calculations, despite the fact that these countries were occupied in the spring and summer of 1940, and their metallurgical industry came under the control of the Third Reich from that time. Thus, minimized figures were intentionally used for the calculations so that the final results would reflect the minimum level of estimated imports of industrial diamonds. Dividing the data on steel production by coefficient (α) gave the desired result.

Table 6. Estimated imports of industrial diamonds by the Third Reich and Japan (mn carats)

Imports/years	1940	1941	1942	1943	1944
Third Reich	4.29	5.37	5.37	5.70	3.98
Japan	1.02	1.13	1.19	1.32	0.96
Total	5.31	6.50	6.56	7.02	4.94

 

The ‘Third Reich’ in the table refers to the European countries that belonged to the Axis powers, as well as the occupied countries. But it should be taken into account that although the industry of these countries was widely involved in the defense production, the manufacturing of diamond tools (and therefore the main imports of industrial diamonds) was mainly located in Germany.

A comparison of the results obtained with the data on the production of industrial diamonds from 1940 to 1944 gives a paradoxical picture at first glance.

Table 7. World production of industrial diamonds from 1940 to 1944 (thousand carats)

Countries/years	1940	1941	1942	1943	1944
Belgian Congo	9100	5500	5700	4600	7250
Angola	340	340	350	340	345
Sierra Leone	500	560	690	550	400
South Africa	220	64	47	128	355
Gold Coast	700	850	900	1130	990
Others	238	245	246	242	305
Total	11098	7559	7933	6990	9645

 

Except for 1940, the combined imports of industrial diamonds by the United States, the Third Reich, and Japan significantly exceeded the world production. Moreover, in 1943, the imports of the Third Reich and Japan taken together (7.02 mn carats) exceeded the world production (6.99 mn carats). The latter circumstance casts doubt on the widespread thesis about smuggling rough diamonds to Germany and Japan from the Belgian Congo, Angola, and Brazil. Even if German and Japanese agents had smuggled the entire annual production of all the world diamond producers (which is, of course, impossible), these rough diamonds would not have been enough to meet the needs of the defense industry of the Axis powers.

But this paradox is easily explained. In 1937, De Beers accumulated about 40 mn carats of rough diamonds in its inventories (Edward Jay Epstein, “The Diamond Invention”). The reason for this was the Great Depression which started in 1929 and led to a sharp decline in the diamond market. The average ratio of gem-quality and industrial diamonds produced was 20 percent/80 percent, therefore, the industrial diamond stock by 1938 was estimated at about 32 mn carats. In 1938, 9.5 mn carats of industrial diamonds were mined, and their consumption did not exceed 5.0 mn carats. It can be said with high probability that De Beers’ pre-war inventories were about 37 mn carats of industrial diamonds. Global production of industrial diamonds from 1939 to 1944 was about 53 mn carats. Thus, the diamond market from 1939 to 1944 could offer about 90 mn carats of industrial diamonds to the warring parties.

USA’s documented imports of industrial diamonds from 1939 to 1944 were 50.16 mn carats. Estimated diamond imports by the Third Reich and Japan from 1940 to 1944 were 30.33 mn carats. The combined imports of the Third Reich and Japan in 1939 are difficult to estimate, given the formal embargo on rough diamond supplies by the Axis powers imposed by England in September, but they were probably under 1.5 mn carats. About 8.0 mn carats remained. The USSR received about 2.5 mn carats under Lend-Lease, and total Soviet pre-war purchases from 1939 to 1940 were about 0.42 mn carats. The remaining 5.08 mn carats were the share of the British military-industrial complex.

It is worth mentioning that according to M. Harrison (The Economics of World War II: Six Great Powers in International Comparison, Cambridge University Press, 1998), the total volume of the Allies’ GDP exceeded the Axis powers’ GDP by approximately 2 to 2.5 times throughout the war. According to our calculations, the Allies’ consumption of industrial diamonds exceeded that by the Axis powers by 1.83 times, which is quite consistent with the ratio of the opposing parties’ GDPs. This is an additional confirmation of our results.

Thus, the data on the consumption of industrial diamonds by the Third Reich and Japan, we obtained using the calculations, fit well into the pattern of world production of industrial diamonds and the documented dynamics of their consumption by the Allies, which, in turn, means that only De Beers’ inventories formed before WWII and replenished during the war from the deposits controlled by De Beers could be the main source of industrial diamonds for the Third Reich and Japan from 1940 to 1944. There was simply no other source on the planet that could produce such volumes of diamonds.

By now, we have received direct and indirect evidence that the channel for supplying industrial diamonds from England to the Third Reich was organized using structures created in 1940 at the British Ministry of Economic Warfare (MEW) and the German Four-Year Plan (Vierjahresplan) Office. Moreover, England officially declared the financing of the Resistance movement as the purpose of supplying diamonds to the occupied areas, which implied their sales on the ‘black’ market. Germany tasked the relevant divisions of the Four-Year Plan Office with purchasing diamonds on the ‘black’ markets of the occupied countries. For obvious reasons, ‘black’ market transactions were not documented, which explains the fiasco of researchers who tried to determine the exact figures for the imports of industrial diamonds by the Axis powers using data from German’s and Japan’s archives that were in the public domain.

The diamonds entered the supply channel from De Beers’s inventories. Therefore, the information about the corporation’s stockpiles was a closely guarded secret. When Roosevelt administration, concerned about a possible Nazi invasion of England [the Operation Sea Lion (German: Unternehmen Seelöwe)], proposed to transport De Beers’ stockpiles to the United States, the proposal was flatly refused. De Beers subsequently stated that the diamond storage facilities in London had been destroyed by bombing and that an inventory of the stockpiles was impossible. The volume of stockpiles, their composition, and the dynamics of their replenishment and sales were never subject to external audit and the data was not published. The main archive of the MEW’s unit, (Special Operations Executive - SOE), responsible for the rough diamond supply channel was destroyed as a precaution after its liquidation in 1946 as a result of an ‘accidental’ fire at its headquarters at 64, Baker Street, but some significant information was received from the interrogation protocols of the German Four-Year Plan Office’s functionaries captured by the Soviets.

The diamond supply channel operated under the control of the Diamond Advisory Committee - no export of rough diamonds from England was possible without its permission - and the representatives of the Oppenheimer clan and De Beers functionaries played the main role in the Committee. To ‘cover up’ the diamond supply channel, the British side spread the disinformation about the alleged large-scale smuggling of industrial diamonds from the Belgian Congo and Angola to Germany. This disinformation special operation was a classic technique, called “distracting by counterproductive debates” in professional slang and was intended mainly to disorient the allied, primarily American, intelligence services. As a result, the Americans spent a lot of effort and time to stop the alleged ‘smuggling’, but were never able to arrest a single German agent or seize upon a single significant parcel of diamonds. Subsequently, the same approach with the same result was used in the early 1950s to ‘cover up’ the supply of industrial diamonds from England to the USSR, bypassing the COCOM sanctions.

From 1941 to 1944, the De Beers corporation was able to profitably sell - using the diamond supply channel - the huge rough diamond stocks it accumulated since the Great Depression, and to create conditions for increased demand and higher prices in the post-war market. De Beers’ responsibility for supplying the fascist regime with strategic raw materials that ensured the prolongation of the war for several years and resulted in millions of victims does not go beyond ethical boundaries for one reason. Winners are never judged.

Sergey Goryainov for Rough&Polished

P.S. The author of this article is currently preparing the book titled “Diamonds and Dictatorships” for publication. It will examine in detail the interaction of De Beers with the dictatorial regimes of the 20th century, taking into account previously unpublished data.

 

Sources of figures:

- CIA Report “World production and distribution of industrial diamonds”. 1952;

- Report “WWII: Manpower and Resources” https://www.statista.com/;

- World diamond mining. Figures, facts, events. Moscow, 2000;

- J. B. Cohen. Japan’s economy in war. Moscow, 1951.