Ponzinomics, the Untold Story of Multi-Level Marketing
Foreword: Read at Your Own Risk
U.S. regulators have weakened consumer protections against pyramid schemes, even exempting MLMs from disclosure rules when making financial solicitations. The "MLM" movement is now syndicated into an "industry" with its own lobbying and PR organization on K Street in Washington, D.C., and has assembled a protective caucus of lawmakers in the U. S. House of Representatives. Multi-level marketing, sometimes also called "network marketing," is now fully global, with a claim of more than 100 million households paying into it every year. In America alone, where it all began in 1945, official MLM representatives claim that in excess of 18 million households -- one in six -- are under contract to MLM companies each year. More than half of that figure joins yearly, replacing those who quit. Every year, the recruited participants expend $20–$30 billion in fees and purchases, though that estimate does not come close to actual total expenditures when related expenses and opportunity costs are included. My efforts have not even made a significant difference, that I could tell, among my own friends and family some of whom have sheepishly admitted to joining and losing their money in MLMs without telling me. They explained they had been taught that a positive attitude and unflinching belief were the most important factors for success in MLM. Negative voices from non-believers and cautious calls for "due diligence" are to be shunned and avoided. In the ideology of the MLM movement, I am fiendish dream-stealer, malevolent negative-thinker, Pathetic Loser. The drivers of our consumer economy -- where sociologist Jules Henry wrote that "pecuniary truth" rules, not factual reality. To get to the core reality that can explain MLM's phenomenal spread, one must also re-examine the state of opportunity in America today, the decline of the middle class, and popular views of wealth as measures of "success," happiness, and human worth. Losers
> Page 2 Measured by the sheer numbers of people who join, quit, and rejoin every year, the billions of dollars invested that produce no profit, and the intensity of hope and commitment it evokes from adherents, if only briefly, "multi-level marketing" must be recognized as one of the most powerful forces shaping social and economic behavior today on Main Street it is an easily documented fact that virtually everyone, 99.99%i, who has ever participated in an MLM -- and we are speaking of hundreds of millions of people worldwide over seven decades -- failed, lost, or quit with zero financial gain. And that only begins the count of losers. Biggest Loser > Page 13 Selling feathers from the angels' wings. > Page 17 On the cover of DeVos's 1975, book, Believe, it says, "Discover how you can attain success and personal fulfillment through belief in free enterprise, human dignity, God and His Church, the American Way." The moral tone and the Christian rhetoric, blended inexplicably with patriotism and capitalism, were adopted by many MLMs that followed. Christian churches became hotbeds of MLM recruiting with clergy in the uplines. > Page 19 With this assumed moral authority and righteousness of purpose, MLM leaders could impose a stigma of shame and humiliation upon adherents who lost money and quit or criticized the program. They were stigmatized as "losers and quitters" or "negative thinkers." Shrouded in the silence and shame of the disgraced and discredited "losers," the massive program of proselytizing and soliciting funds for a non-existent "income opportunity" proceeded without public outcry, leaving millions with losses in its wake. Dreams and Schemes: Journey to MLM
Page 21 As is now widely known, the real money in this and other gold rushes was not in gold itself, but in selling to gold-seekers supplies, tools, transportation -- anything that fed their hopes. > Page 30 Leveraged by the enormous power and authority of science, these minuscule food elements were hyper-commercialized by non-scientists as miracle discoveries that could now be extracted and made available in pill form -- for a price. Though scientists had shown that the abnormal absence of these nutritional elements could lead to disease, the commercial promoters distorted these discoveries into claims that adding them to a normal diet could ward off illness and even cure diseases. Pseudo-Truth > Page 38 As Catherine Price's history and analysis argues, the mania for vitamins in Rehnborg's time -- and today -- is largely a result of advertising, public relations, marketing, and salesmanship. What scientists had discovered, advertisers and marketers remade into their own image, creating a mythic commodity that barely resembled the nutritional component of the laboratory. > Page 38 Jules Henry called advertising's "pseudo-truth and pecuniary logic." ... "Pseudo-truth in advertising," Henry wrote, "is a false statement made as if it were true but not intended to be believed literally." No proof is offered, nor required. "Proof is that it sells merchandise; if it does not, it is false." Informing people that the normal diet of the times made taking vitamin "supplements" unnecessary became "false" -- because it does not boost sales. Stating that vitamin pills provide "energy" (which is impossible as they contain no calories) and "boost immunity" (for which there was no evidence) became "pseudo-truth" -- because it does lead to sales. > Page 43 The consultant then advised Rehnborg to enroll in a Dale Carnegie course. Calcote also thought the training program would help Rehnborg "deal with distributors who were from the hard school of sales."57 Rehnborg's attendance at one of America's first large-scale "self-improvement" programs might harken to his early practice of making lists of habits for developing a "dashing personality." But a momentous encounter at Dale Carnegie's program, and the historical point at which it occurred, gave the event greater meaning. > Page 45 Dale Carnegie was an aspiring actor, but later found extraordinary success in teaching public speaking. > Page 45 The most famous novelist at the time, Sinclair Lewis, characterized Carnegie's book about "winning friends" as "how to smile and bob and pretend to be interested … precisely so that you may screw things out of them …"62 That How to Win Friends and Influence People is not at all about real friendship can be quickly ascertained from the subtitles, "Fundamental Techniques in Handling People, How to Win People to Your Way of Thinking, How to Change People Without Giving Offense or Arousing Resentment." > Page 49 Nutrilite's new language, however, went far beyond euphemisms. It produced a special vocabulary and way of speaking that cover over facts by authoritatively asserting their opposite. It was a precursor to what would evolve in "MLM" into an Orwellian doublespeak, in which controlled and manipulated contractors became "independent business owners," quota purchasing became "selling," wholesale was designated "retail," distributor morphed into "end user," and 99% loss rates were proclaimed "the greatest income opportunity in the world." The term "doublespeak" is associated with George Orwell's famous novel, 1984, published in 1949. > Page 50 The doublespeak that Nutrilite developed around products to escape prosecution would later expand to an all-encompassing, proprietary vocabulary, covering MLM's pyramid structure, false marketing claims, money-transfer pay plan, and would conceal or obscure the roles of recruiters. It would be taught with propaganda techniques involving constant repetition of thought-stopping aphorisms, e.g., "only quitters lose and only losers quit," resulting, as Orwell explained, in an inability for followers to hold contrary thoughts or to formulate questions. Cemeteries and Psychology
Page 53 Very similar in tone and published just two years after Dale Carnegie's famous work, How to Win Friends, Casselberry's How to Use Psychology was an early example of the "self-help" genre that was previously directed at salespeople for teaching commercial persuasion techniques, but would later go mainstream for effectiveness in all areas of life. ... No demand had ever existed for the ostensible product of a cemetery plot, to be purchased years before the customer passed away. But Mytinger's sales reps were not selling just real estate. They were offering a way to remove the sting of death, purchase eternal bliss, and even gain higher social status, replete with music, statues, and vistas of mountains and valleys to be appreciated for eternity.85 ... This experience in an invented field -- based almost totally on sales pitches, not intrinsic value or consumer need -- would prove crucial when Mytinger and Casselberry launched their new sales plan at Nutrilite. ... The sales position at Forest Lawn and other cemetery sales operations Lee Mytinger occupied was termed "memorial counselor," presaging the nomenclature adopted in multi-level marketing of "coach, consultant, associate, distributor" -- anything other than salesperson or recruiter.i In this "counselor" capacity, the range of services recommended could extend far beyond a plot of burial soil, to include "vaults, bronze grave markers, flowers, postcards, and statuary and the collection, control and management of huge 'perpetual care' funds." Mitford revealed that cemetery plot salespeople could add a surcharge from 10% to 25% for "future care" even on concrete mausoleums.87 > Page 66 The vision of an "endless chain" of salespeople was born not out of a grand plan for a vast new industry, which did develop, or as a plot to cause losses to millions of people, which it did; it emerged from the mundane experience of a seasoned old cemetery plot sales manager who dreamed, as all sales managers have, of a protected and growing income. It was conceived out of a longing for a safe haven from the insidious competition of younger upstarts, from the brutal realities of market limits and fluctuating demands for commodity products. It was imagined as a form of deliverance from the humiliating circumstances endured by sales managers the world over, a transformation of a thankless role as custodian of a churning sales force into the captain of a regenerative money machine. > Page 66 The real commodity to be marketed under the new "plan" would not be Avon-type cosmetics or Fuller Brush gadgets. It would be the salespeople themselves, the clay of the sales manager's craft. Appropriately then, new managers would all be called "independent business owners." > Page 74 Insight into the groundbreaking moment when "multi-level marketing" was created requires looking closely where few have explored -- the similarities and the boundaries between selling, which was the primary bond between Mytinger and Casselberry, and swindling, which is what they conspired to create. Mytinger and Casselberry crossed the line from selling -- generally defined as voluntary agreements for commercial transactions between parties based on adequately disclosed information and resulting in a reasonably equitable exchange -- into swindling, generally defined as calculated deception, withholding of information necessary to a voluntary agreement and -- by design -- resulting in loss to one or more parties at the hands of the other. > Page 75 No one believes that money is given away for free. In sales, the bargain might be portrayed, for example, as "limited time," implying that the regular prices paid by the unfortunate later buyers provide the funding for the discounts today's wise or lucky buyer could enjoy. The salesman is the only person who can offer this special deal now. Page 87 [There is a] popular belief gripping America's imagination: a business model actually existed, somewhere, that was capable of producing perpetual and extraordinary income for all participants, delivering to the common man what was once available to only the elite, thus fulfilling the promise of the American Dream. Page 88 In sales there is always inside information not available to the customer or the public at large. ... The customer's belief that that they are making rational decisions is, the salesman knows, mostly an illusion. In reality, the salesman makes it happen with information he does not share. The salesman's joke, therefore, is always on those who are not in possession of that key information and who can be directed, even controlled, by scripted promises, logic and benefits. This is the universal secret knowledge salespeople hold, the tools of their trade. > Page 99 As Ponzinomics evolved, critical judgment was not only diverted but would be banished by dogmas, values and specialized language, pretenses of a viable and beneficial economic model. Anatomy of a Pyramid Scheme
> Page 105 You pay for marketing materials, fees for motivation events, even business cards. On the other hand, you have severe restrictions under the MLM contract you must sign when you first enroll. > Page 105 All MLMs require payment to join, payment to renew and quotas of purchases or recruiting or both to gain overrides on your own recruits. > Page 107 In MLM, "sales" means recruiting; retail means wholesale, the price paid by the "downliner;" and, since everyone on the chain must meet a purchase quota, salesperson means buyer. Got it? > Page 110 There is no sustainable retail customer base, no real demand for the goods, no need for a personal salesperson and therefore little to no retail selling. But there is a tremendous market for "income opportunity." ... It includes students with college debt, seniors facing mountains of medical bills and disappearing savings, families with unbearable rents, people already working two jobs, immigrants trying to survive, and military spouses facing multiple deployments, among others. The income-opportunity market is exploding! > Page 111 They will be quitting soon -- as many as 80% of the latest recruits do quit within the first year of joining. But they are replaced. Some move on to other MLMs, replacing dropouts at those companies. The object is to get them to buy as much as possible (that's why there are purchase quotas), for as long as possible (that's why they are promised "unlimited income" if they keep buying and if they miss even one month, they lose everything), and get as much from them (the extreme money transfer formula) as possible while they are enrolled and buying. > Page 113 Most naked pyramids eventually collapse when not enough new people join, resulting in others not getting their rewards. The chain breaks. But MLM is not recognized as a pyramid scheme because its true anatomy is disguised. It's endless chain keeps breaking but is repaired as new people replace the "losers." MLM is officially designated as "direct selling." It is "legitimate." So people keep joining, lured by deception, and driven by hope and need. Even though the data exist showing the 90+% loss rates -- it was even explained, comically, by John Oliver on HBO -- few people believe it. Because how could that be true and it also be "legitimate?" > Page 113 Those that don't make money just didn't want to or didn't try hard enough. > Page 117 Holding ceremonial spectacles in enormous stadiums and posing on stage as high priests possessing sacred secrets, MLM promoters tout their schemes as the fulfillment of the mythic American Dream. They flaunt their own wealth as proof they can align the stars, so to speak, to deliver success and happiness to followers. They gain enormous wealth and near worship from awe-struck followers who suffer financial loss, debt and social alienation, building the MLM pyramids with their own money and free labor. Ponzinomics -- Propaganda
> Page 148 The dire, factual warning of death and deformity competes with positive and pleasing imagery of health, beauty, and enjoyment. The cigarette producers do not deny their product kills. They don't need to. They know the more powerful and reassuring alternative message -- smoking is about pleasure -- will prevail. > Page 149 By then, multi-level marketing was more than just a very large business with deep political connections gained from payments to politicians. It was also a mass movement on Main Street USA with millions of followers who displayed levels of zeal and obedience never before seen in American business. Some followers resembled addicts with fanatical behavior once reserved for certain realms of religious fundamentalism and political extremism. > Page 149 American power alongside Big Tobacco, Big Pharma, the Military-Industrial Complex, Wall Street, and Hollywood. It used the tools and tactics of all extreme power holders among them, to deny or ignore reality when facts posed a threat or inconvenience, and never to admit to errors or contradictions, even when verified and indisputable.ii > Page 155 MLM no longer denied its Ponzi money transfer. As the scheme spread globally, Amway and other new MLMs moved from denial to a more aggressive form of deception, the creation of an alternative reality with "alternative facts." Amway began proclaiming itself "the greatest income opportunity in the world." > Page 156 Powerful PR backed by official government policy. > Page 156 Many observers have noted that America has recently entered a strange new era, characterized by outrageously false rhetoric and absurd conspiracy theories. Verifiable, widely accepted, even scientifically proven facts now must officially compete with blatant lies, euphemistically called "alternative facts." In this new realm, dedicated liars have the extreme upper hand.i. > Page 157 In keeping with the well-known principles of propaganda making, MLM promoters employed the famous practice of repeating a lie, aka alternative facts, so often it is eventually perceived as the truth.ii Truth -- actual truth -- soon becomes stranger or more frightening than the comforting and constantly repeated lie.138 > Page 157 Forbes contributor Steve Denning referenced the writings of Hanna Arendt.139 On the origins of authoritarianism, Arendt argued that the public (during the Nazi period), "do not believe in anything visible, in the reality of their own experience … obsessed by a desire to escape from reality … they can no longer bear its accidental, incomprehensible aspects. Totalitarian propaganda thrives on this escape from reality into fiction." > Page 159 In all extreme belief systems where deception and fairy tale legends replace history and fact-based reality, brutal enforcement measures are used when trickery and propaganda prove inadequate. Questioners, critics or opponents who challenge the lies face public lawsuits, smear attacks, even physical threats. MLM follows suit. > Page 159 Extremism when a whisper campaign spread among Amway's army of participants throughout the 1980s and early 1990s suggested P&G was a "satanic" company and its logo was an evil symbol. Many Amway recruits, some of whom were traditional Christians and believed the vicious rumor spread informally and over Amway's corporate voice-mail system, hurriedly threw out products in their homes bearing the "evil" P&G logo and replaced them with Amway-branded goods, though many were much higher priced. > Page 161 Attacking, discrediting or marginalizing critics or whistle-blowers are defensive and enforcement aspects of Big Lie propaganda. To maintain strict control over believers and adherents, this level of deception requires even more unconscionable actions. People must be taught the equivalent of a heaven or hell destiny: a utopian future if they keep paying and recruiting, a hellish dystopia for the doomed quitters and losers. > Page 163 [Here is a] portrait of how the scheme permeated individual lives, disrupted, families, and impacted social networks. Amway had become an evangelistic belief system, they both wrote, with its own rituals, hierarchy, membership, rules, enforcement, and extreme indoctrination. To those financially struggling and feeling left behind or forgotten in the global economy, it promised deliverance and fulfillment of the American Dream. To those who quit or even questioned the promised destiny, Amway's promoters predicted a dreadful life of unfulfilled dreams, regret and lost potential, a level of hell that Dante's Inferno might have included had Dante lived in modern America. > Page 167 A specialized language, a form of commercial doublespeak was adopted to obscure the entrapping endless chain incentive and to make the purchases appear as ordinary consumer purchases, unrelated to the income scheme. Fixed-priced transactions with contract-wholesalers were renamed "retail." Recruiters were called "distributors." Recruiting rewards became "performance bonuses" and "sales commissions." Paying to join the recruiting chain was disguised as signing a "sales contract" and receiving a "sales kit." Those who failed to enroll a recruit were renamed "discount buyers." > Page 169 How to Lie with Statistics, the most popular book ever written in the field of statistics is, arguably, about the most common way that statistics are actually used.152 Author Darrell Huff acknowledged the book could be "a manual for swindlers" but concluded, "crooks already know these tricks." ... Huff explained how the use of statistics could add "a spurious air of scientific precision" to absurd claims or erroneous conclusions that a common-sense observation or a more careful examination would quickly reveal as nonsense or dangerously false. > Page 181 The FTC protection policy, like MLM's recruiting scheme, appears on the surface to be its opposite -- a "consumer protection" agency to prosecute "illegal" MLMs. It has a record of more than 30 successful MLM prosecutions. A closer look and a study of the FTC's regulatory history reveal only the clamor of gongs and cymbals. > Page 183 The FTC uses retail sales a measurable factor in determining MLM legality. With millions of people investing money in the belief that MLMs are retail-based, it would seem that all MLMs would be required to verify their retail sales levels. No requirement to disclose retail sales levels has ever been asked for or imposed by the FTC. > Page 184 The control and collusion of the FTC and other sectors of law enforcement, however, required direct action: political influence-buying involving state legislatures, attorneys general, Congress, and the U.S. presidency. Behind MLM's license to fraudulently claim perpetual expansion, falsely promise unlimited income, and openly run money-transfer recruiting schemes disguised as "direct selling," is old fashioned political corruption, boodling and bribing. Public officials have to be "influenced" to protect MLM over the public interest. The story of Ponzinomics now enters the dark world of K-Street lobbying, revolving doors between consumer protection agencies and pyramid schemes, and political fixes. Ponzinomics -- Politics
> Page 188 Ponzinomics: noun / pän-z?-'nä-miks / a pseudo-economic, all-encompassing, delusional belief system that promotes the swindle of a Ponzi or pyramid scheme as a valid economic model that promises believers a fulfilling and financially rewarding way of life, complete with mission, values, leadership and worldview. The societal spread of Ponzinomics is necessarily accompanied by governmental collusion. > Page 189 [I am often] asked, "why hasn't the government prosecuted the MLM industry? You think you know more than the FTC and SEC or Congress? Wait … (with a derisive laugh) are you saying the government is in on it too?" My answer to that question is seldom well received. > Page 191 "The MLM business, regulators and lawmakers are swathed in their own protective myth of good government valiantly battling evil pyramid schemes. Government often fails, the tale ruefully admits, not due to corruption or neglect, but devilish maneuverings of highly paid pyramid lawyers, inadequate statutes, uninformed legislators, and insufficient budgets. Pyramid fraud endures despite government's good faith effort. To mention a "fix," -- political payoffs and revolving doors between regulators and those regulated -- is insulting, impertinent, wrong-headed, and irresponsible. The public is expected to be grateful > Page 194 That "MLM" is permitted to operate with impunity due to political collusion and influence-buying is a view many find unthinkable, unbearably negative. Individual corruption is comprehensible. Systemic, enduring and bi-partisan protection of an insidious global scam is beyond the purview of "news." It would require a new vocabulary for reporting regulatory actions. To acknowledge the reality is to erode confidence in all governmental agencies. Institutional corruption will not be examined or acknowledged by the implicated institutions. As a perspective, it borders on conspiracy and provokes confusion and despair for many people. ... To break the spell of disinformation and to venture into this culturally unspeakable territory requires adopting, at least briefly, a perspective from another era. Boodling and Bribing
> Page 227 In recent years, the revelations of other prominent Democrats joining the cause of pyramid protection for fees and jobs have corrected earlier thinking that Republicans hold a monopoly in this lucrative protection program. Formerly known as the "Amway Caucus" in the 1990s and composed only of Republicans, today forty-one members of the House of Representatives have joined the newly re-branded "direct selling caucus." Eighteen members are Democrats.215 A Cult of Capitalism
> Page 266 Employing an epistemology of the advertising industry in extreme form, truth is whatever facilitates expansion. Facts themselves are irrelevant. Deception is celebrated if it sustains hope and increases revenue. Any statements that question the system or threaten loss or inhibit expansion are false, heretical or malevolent, according to its ideology. > Page 267 My colleagues and I only spoke about MLM as an extremist cult of capitalism promoted by economic alchemists who cast a thought-reform spell over recruits amongst ourselves. > Page 272 From its earliest days, multi-level marketing included pseudo-psychological self-improvement programs that claimed powers to drastically alter an individual's outlook and attitude and to instantly facilitate effectiveness, especially financial success. The three largest and fastest growing MLMs that the FTC targeted in the 1970s -- Holiday Magic, Koscot Interplanetary, and Amway -- each had indoctrination programs, euphemistically termed "mind training,""transformational," or "motivation" courses. > Page 274 Long before multi-level marketing shamed its adherent with the specter of "loser," salespeople were mercilessly indoctrinated with the winner-or-loser philosophy of life. Fortified with the spirit and the doctrine of the marketplace, they were then trained in the weaponry of persuasion, manipulation, and domination. Before "sales-and-marketing" became an academic discipline, it was an underground belief system, an ideology, and a philosophy for living, crassly commercial in character. The discipline of sales was presented as more than tools of a trade. It was "self-improvement," a study of human nature, a pathway to success in business and happiness in the rest of life. > Page 278 Viewed generally as a positive, inspiring and uplifting perspective on life, in the hands of pyramid scheme charlatans and cult leaders, the "everything is possible" proclamation becomes a tool to destroy personal identity, subvert critical thinking and to blow up life-long perceptions of what is real and true. When life circumstances, background, direct experience or a lifetime of learning are dismissed only as a limiting perspective that can be reshaped, abolished or "transformed" by merely altering perspective, people are suddenly vulnerable to new and dominating interpretations. Thought control and undue influence are more possible. > Page 278 Hannah Arendt explained "[people] reached the point where they would … think that everything was possible and that nothing was true … [the public] did not particularly object to being deceived because it held every statement to be a lie anyhow." > Page 281 The new cult movement was not established structurally as a church, political movement, or a school of philosophy, though it resembles all of these. MLM was organized as the most revered institution in modern America -- a chartered business that promised "self-employment" and the exalted status of "owner" to its followers. Officially, it did not convert or persuade or dominate. It sold its beliefs and its false promises of wealth-and-happiness, making them appear as voluntary commercial contracts. At a time of rising anomie, it promised guiding truths, a supportive community and financial security. It appropriated the name and assumed the identity of the extinct but still revered field of "direct selling," conjuring the celebrated Yankee Peddler, icon of American enterprise. > Page 285 There is no consensus as to why the cultic organizations in religion, politics, therapies, and other fields -- including MLM -- emerged in the 1960s and 70s and have grown and proliferated since. Cults defy precise classification; the phenomenon of sudden personality changes among its members, irrational loyalty, and acceptance of delusional claims of cult leaders, remains mysterious. > Page 289 All cult experts agree that virtually everyone is a potential cult member and social forces supporting cult recruiting affect almost everyone. Nevertheless, the enduring popular perception is that cult victims are limited to peculiarly vulnerable individuals facing unusual circumstances. Most people, therefore, believe they themselves would not be cult candidates, or if they were solicited would never succumb. As experts Hassan and Ross attest, even people inside cults believe they would not join one and deny they are in a cult. Cults are therefore protected by the denial and disbelief of people inside them and out. The enslaving power that cult persuasion can have over minds -- anyone's mind -- remains largely unstudied or ignored, aiding the spread of cults. Crime, Blame and Punishment
> Page 303 To distinguish positive events and inspiration from thefts of the soul requires a restatement of the most basic elements of all swindles. Leff's distinction of a religious swindle from honest religious practice is applicable to MLMs' fundamental fraudulence, wrapped in the rhetoric of hope and entrepreneurship. Leff's hallmark traits of fraud are that the perpetrator not only does not deliver the reward promised to his marks, but knowingly does so, deliberately and with planning for personal gain and at the cost of the believers.314 Afterword: No Hope and None Required
> Page 307 Currently in 2020, there is no consumer protection organization with dedicated staff or resources that a consumer could turn to for representation against MLM. To my knowledge, there is no current member of Congress speaking up about MLM as a major consumer threat. > Page 310 [The] HBO documentary, Betting on Zero, directed by Ted Braun, was the force that shifted the tide. It provided a narrative and footage that Oliver brilliantly built upon.