A lot of people I know believe that the tradition of an expensive engagement ring was created by advertising. People who know more often believe that it was created by a 1939 ad campaign by De Beers.
But that's not consistent with what we know about the psychology of advertising. While the science of advertising is in its infancy, it's become more and more clear that ads are effective at convincing people to switch brand loyalty, but less effective at getting them to start using a new product (here, engagement rings).
It's true that we are surrounded by advertisers spending millions of dollars to change our values and perceptions. But in the case of engagement rings, the advertisers were probably just swept up in the fad. The real story of why we give expensive engagement rings is much more fascinating.
Surprisingly, it has everything to do with the economic theory of contracts.
For much of American history, if a man slept with a woman, he was legally obliged to marry her. One of the last successful political acts of the Progressive Era was the abolishment of these shotgun wedding laws. They were considered out of date and old-fashioned in the modern era of love marriage. They were also easily abused.
In economic terms, a man could promise a woman undying love in exchange for sex, much like the narrator of Paradise by the Dashboard Light. Before the 1930's, this was an enforceable contract because the government had agreed to serve as enforcer. But with the repeal of laws, the man's honor was the only enforcement.
Economists like to emphasize how enforceable contracts facilitate business transactions which encourage generation of wealth. This principle works even if the transactions are sexual, and even if the actors aren't cool calculating economic agents, but are instead sweaty teenagers parked in the Model T late at night. With the government surrendering its role, transactions would have to diminish unless something changed.
Both men and women likely enjoyed sex and wanted more of it. Kinsey's research indicates that about half of couples had sex before marriage in that era (and I suspect this is an underestimate). So men used an engagement ring as a 'pledge'. If the man would provide collateral in case of breach of contract, the woman would not need to trust his word. The ring served as the collateral.
Despite being an academic article, the linked article above is easy to read and interesting. It goes over the mathematical evidence linking repeal of heartbalm laws to increase in engagement ring giving. It also goes on to show that, in the modern era, with easy access to birth control pills, demand for diamond rings has diminished.
I dont think De Beers wasted its money. There's no economic reason why diamond, instead of gold or rubies (say) became the de facto engagement ring material. And certainly, De Beers is nearly synonymous with diamonds even now. But the actual tradition of giving expensive engagement gifts was not created by advertising. It was created by sexual economics.