What is the difference between an MLM and a pyramid scheme?
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A “pyramid scheme” is technically another name for a Ponzi scheme. This is where no goods or services are actually traded. Rather, you take money directly from people, with the promise you’ll give them more money back in the future. Those people in turn recruit others to give them money, and kick some of that money back up the chain. As long as everyone keeps recruiting more people than the layer before them, everyone makes money. But as soon as that stops, the people at the bottom are left having paid a bunch of money and get nothing back.
MLMs are effectively the same thing, but they include goods or services as part of the transaction. Rather than simply asking for money from people directly, you sell them something. Then they try to sell that thing onto more people, and so on. As long as everyone keeps recruiting more people to buy stuff from them, then everyone makes money. But if someone buys a bunch of merchandize to re-sell and then can’t, they’re screwed. This of course can’t continue forever, and in fact it doesn’t for about 98% of participants, who lose everything and are told it’s just because they didn’t work hard enough.
While MLM participants insist the exchange of goods makes it “not a pyramid scheme,” and the law does make it a pretty grey area apart from an actual Ponzi scheme, they are effectively the same thing. But with another whole layer of hustle culture / lifestyle / cult stuff on top of it, so that when the pyramid inevitably fails, people are left thinking it’s their fault and not the fault of the ones at the top of the pyramid.
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