Faced with stockpiles that were on the verge of being significantly devalued, the owners of those deposits had three options:
A) Compete against each other and watch the value of their diamonds plummet as the law of supply and demand drove prices down;
B) Forget the diamond market and just use their land to invest in Six Flags Over Zimbabwe;
C) Band together to form an evil multinational monopoly that would inflate prices and earn them billions upon billions of dollars.
We know. Stupid morals.
Go figure, they chose the third option, forming the cartel we know as De Beers. To maintain the perception that diamonds were rare, De Beers not only significantly limited how many diamonds they mined each year, but also literally started buying up all the other diamonds and just stockpiling them (along with their own excess supply). Combined with a decades-long advertising campaign, they created a perception out of thin air that diamonds were rare and valuable, and that you had to drop thousands of dollars on one to prove you loved your spouse.