Back then, there was a high premium on women being virgins when they married. If the groom-to-be walked out after having had sex with the bride-to-be, she would find herself in precarious straits. Socially, she had been permanently "damaged", while economically she had lost her market value. At the time, a woman's only recourse was a now-obsolete law called the "Breach of Promise to Marry" which allowed women to sue men for breaking off an engagement. But Breach of Promise laws have long since been eliminated.
An engaged couple aren't all that different from a borrower and a lender. The woman is lending her hand in marriage to the man, who promises to tie the knot at a later date. In the days of Breach of Promise, the woman would do this on an unsecured basis -- that is, the man didn't have to pledge any collateral -- because the law provided her something akin to bankruptcy protection. Put simply, if the man didn't fulfill his obligation to marry, the woman had legal recourse. This calculus changed once the law changed. Suddenly, women wanted upfront financial assurance from their men, collateral. That way, if the couple never took their vows, she'd at least be left something. And that something was almost always small and shiny. The diamond ring was insurance. And today, it is mere signalling.
