I know the term but I’ve never actually been able to understand what it is and what happens in one
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The simplest pyramid scheme involves getting money from people in return for nothing of value. So I go to 10 people and give them a speech: “All of you, give me $10, and then you all go find 10 more people each, and give them this same speech. Everyone who successfully does this will wind up being $90 richer. But it ONLY WORKS if everybody actually gives the $10.”
I get $100 from them. They each get $100 from their various victims. And so on. But it can’t go on forever, because eventually you run out of people for them to recruit. So it’s illegal, because it always results in a bunch of people getting screwed. Economies have collapsed because of this scam.
So to get around the law, what people do it try to disguise it as a sales thing. I don’t just tell you to GIVE me $10, I get a few pennies worth of cheap merchandise, and I SELL it to you. And I tell you to go out and recruit more people, who will in turn buy from you. Your job is to sell cheap merchandise, and at the same time, recruit new people to sell more of it.
But at the end of the day, the actual product is just an excuse- nobody actually wants the stuff, you can get that in a store. The point is that I’m getting a bunch of suckers to give me some money and recruit new suckers- just like in the original scheme. Except it’s not quite illegal now, because we’re pretending we’re selling stuff, rather than just handing over money.
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