Is the diamond mystique about to crumble?; The Rise and Fall of Diamonds, by Edward Jay Epstein. New York: Simon & Schuster. 285 pp. $14.50.

First, the good news: If your taste runs to two-carat diamonds on your pinky, soon you might be able to buy a bargain. Next, the bad news: Lorelei Lee was wrong, diamonds are not a girl's best friend. In fact, Lorelei would have done better to have persuaded her boyfriends to give her T-bonds.

These tidbits and others more provocative tantalize the reader in Edward Jay Epstein's ''The Rise and Fall of Diamonds,'' which he designates ''the shattering of a brilliant illusion.'' Epstein demonstrates with flair that when the world's most secretive industry is paired with the most uninformed customers , the resulting mystique is out of all proportion with the intrinsic worth of those tiny carbon crystals.

Before the discovery in 1870 of two huge mines in South Africa, the DeBeers and Kimberley, diamonds were truly rare, owned only by millionaires and royalty. Now they are worn by everyone. Yet the myth persists that diamonds mean wealth, status, power. Why?

The answer, says Epstein, lies with the powerful, international cartel, known as DeBeers Consolidated Mines Ltd., headquartered in South Africa, and its web of subsidiaries and controlling interests. Epstein calls DeBeers the creator of a ''diamond invention.'' By controlling directly or indirectly the world's production and sale of rough stones, DeBeers has turned a commodity that could have been as cheap as aquamarines into an expensive symbol of eternal love.

DeBeers did it through that 20th-century phenomenon, mass marketing. In the 1930s America was its biggest potential customer. Using the wish-laden ads created by N. W. Ayer Advertising, DeBeers appealed to the American male, saying that only a diamond engagement ring (and not a cheap one, either) was appropriate for his beloved. At the same time, she had to be convinced that the diamond must forever remain a family treasure, never to be resold. The demand was created; the sale of diamonds soared. And DeBeers kept tight rein on supply.

In fact, DeBeers has claimed that it controls 80 percent of the world diamond trade, but Epstein maintains it controls only 50 to 60 percent. The rest is smuggled out of the mines of Central and West Africa and of Russia. In spite of intensely sophisticated electronic security in the mine fields and a counterintelligence system to foil diamond smugglers that rivals the ingenuity of James Bond, these smuggled gems eventually find their way to diamond dealers. Smuggling and income tax evasion are only two reasons why secrecy is the name of the diamond game. Getting a diamond merchant to talk freely is as easy as opening an oyster with a toothpick.

But Mr. Epstein has been tenacious, and he provides in ''The Rise and Fall of Diamonds'' answers heretofore known only to the industry. (This explains some unfavorable comments about the book.) Epstein tells why diamond jewelry retails for about the same price everywhere in the United States, whether at a big jewelry chain or on Main Street. He relates how DeBeers convinced the Japanese to plight their troths in 60 percent of the cases with a diamond engagement ring , when before the late '60s, their culture was innocent of engagement jewelry. And he debunks the belief that the family jewels, unless they are flawless or large, will fetch much when sold. In a chapter entitled, ''Have You Ever Tried to Sell a Diamond?,'' he relates horror stories of little old ladies reselling diamonds at 60 percent of wholesale - which is at least 95 percent lower than retail. Investors, too, convinced that the always-rising price of diamonds meant a sure thing, are loaded with diamonds which won't bring any return on investment.

Diamond-trade characters have fascinated many, including Ian Fleming, James Bond's creator. Epstein presents in all their ambiguousness Cecil Rhodes, who built the DeBeers empire and left his fortune to Oxford University; Sir Ernest and Harry Oppenheimer, father and son chairmen of DeBeers, who increased the value of diamonds by making them scarce; Charles Engelhard, American metals entrepreneur and associate of Harry Oppenheimer; Sir Percy Sillitoe, former head of British counterespionage, who was hired by DeBeers to use similar techniques to track down smugglers; and Fred Kamil, a Sillitoe ''diamond soldier,'' turned extortionist and writer. The book teems with a cast of thousands of brokers, dealers, cutters, and polishers in London, Antwerp and Tel Aviv, and contains a modern Russian diamond dealer who gives a traditional Jewish blessing to his Japanese buyers.

Together, these characters have prevented gem diamonds, whose intrinsic worth based on the cost of industrial diamonds is not over $30 a carat, from ever falling in price, unlike other commodities in this uncertain world. Until recently, that is. Epstein sees a crash approaching, perhaps even the end of the diamond mystique.

A large stockpile of diamonds now exists, 10 times the annual production of all the world's mines, which is neither controlled by DeBeers nor readily absorbed into its stockpile. Five hundred million carats of gem diamonds are owned by private individuals. One billion dollars worth have been bought for investment. Banks in Israel are holding millions more. Tests indicate that new mines in Australia will soon yield up to 50 million carats a year, and Australia has successfuly fended off DeBeers efforts at control. In addition, gem diamonds are starting to be made synthetically.

As these sources attempt to sell their diamonds on the open market, diamonds may become worthless, as indistinguishable in price from cubic zirconium, the budget-priced fake, as they are in size, color, and clarity. Will the DeBeers monopoly surmount this latest obstacle? Will the mysterious, glittering stone retain its magic? Read ''The Rise and Fall of Diamonds'' for a more informed judgment.

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