Multilevel Marketing Scams Are Capitalism in Microcosm
Multilevel marketing companies promise that everyone can become a boss and get rich if they hustle hard enough. But they’re actually fraudulent pyramid schemes that, like capitalism writ large, require mass exploitation to enrich the few at the top.
Like the economic system they’re embedded in, MLMs promote individualism, incentivize exploitation, discourage collective self-advocacy, and run on the fantasy of limitless growth. (John Taggart / Bloomberg via Getty Images)
- Interview by
- Meagan Day
In multilevel marketing companies (MLMs), the only relationships permitted are hierarchical ones. Participants can talk to their recruiters, who profit from their work, and to their own recruits, whom they profit from in turn. But they’re forbidden to talk to others in their same position in the chain of command, an infraction known as “cross-lining.” Why? Because nonexploitative relationships might lead to mutually honest conversations among equals — which could, in turn, lead to dawning awareness that the whole thing is a scam.
For this reason, among others, Bridget Read calls MLMs “the opposite of solidarity,” basically the antithesis of a union. Read, the author of the book Little Bosses Everywhere: How the Pyramid Scheme Shaped America, contends that MLMs hold a mirror up to capitalist labor relations writ large. Like the economic system they’re embedded in, MLMs promote individualism, incentivize exploitation, discourage collective self-advocacy, and run on the fantasy of limitless growth. The relationship is more than incidental: the story of MLMs is the story of postwar American capitalism itself, with the pyramid scheme distilling and repackaging its most seductive illusions.
In this interview with Jacobin’s Meagan Day, Read discusses the Cold War anti-communist origins of pyramid schemes, the economic reasons women emerged as their target demographic, what MLMs have to do with cults and self-help gurus, and how they laid the groundwork for other exploitation in other industries, not least the misclassification of gig workers.
Read is a features writer at New York magazine, whose subjects include the powerful and the powerless as well as scammers and their marks. Previously, she wrote for the Cut and was a culture writer at Vogue. Her writing has also appeared in the New York Review of Books, Bookforum, n+1, the New Republic, and Vice.
Since the 1980s, MLMs have become increasingly global. Yet there’s also something distinctly American about them. What were the economic, political, and ideological conditions in the postwar United States that gave rise to multilevel marketing?
To answer that question, we have to separate out the truth from the propagandistic narratives that MLMs promote.
The men who invented multilevel marketing circa 1945 were failed salesmen. These were able-bodied, educated white men who were, in theory, the ones who should have been prospering in the dawn of the American era — the end of World War II, the [Dwight] Eisenhower era, the age of abundance. But they were struggling, which seemed to violate the economic promise of the period.
That contradiction is where MLM is born. They take something that’s not working for them and is, in fact, fundamentally broken — the private enterprise system, predicated on the idea that individual economic actors will flourish in the free market in competition with each other — and they succeed by spinning the story that it’s actually the greatest invention ever created. This system is so great, in fact, that if we somehow multiply it so that every single person can be their own boss perched at the top of their own little pyramid, then every single person can become a millionaire.
The life of a salesman was leading nowhere, but by selling this story, they were able to become rich themselves.
How does the New Deal factor into the origin of MLMs?
The New Deal creates the category of labor that MLM requires and feeds on: independent contractors. That category existed somewhat beforehand, but the New Deal really solidifies it because, with the Social Security Act, it establishes the status quo for full-time employees.
What I found in my research was that door-to-door selling companies, which employed salesmen, really ginned up the rhetoric that the New Deal shouldn’t protect this type of labor. They created the doublespeak term of “independent contractor” where the worker is not actually employed, per se, but is instead equipped to prosper.
At the time, MLM had not been invented. These were just regular door-to-door salesmen. You had Fuller Brush, Electrolux vacuums, Avon — these Americana companies. The work was really bad. It was drudgery; it was not dignified work. These companies felt threatened by the New Deal as they relied on extremely tenuous, high-participation, and low-cost labor. They needed this particular form of exploitation to be preserved because it was literally their business model.
Once the New Deal basically legalized the independent contractor category, the resulting Wild West of unregulated labor laid the groundwork for the creation of MLM. What we have seen since is that in every moment of economic anguish, people rush into and flood multilevel marketing schemes, which have flexible education requirements, low investment requirements, and allow people to participate quickly with minimal oversight.
How did Cold War conceptions of capitalism and freedom dovetail with this story?
MLM’s founders dabbled in early libertarian thought, linking up with free enterprise ideologues and the early seeds of the New Right. These were not Eisenhower Republicans who were resigned to New Deal worker protections. These were people who thought that the New Deal was an existential threat to the American project and linked it with the Cold War fight against Communism at home and abroad.
At MLM’s first tenth anniversary celebration, a guy named Leonard Read spoke. He was associated with the Foundation for Economic Education, an influential libertarian think tank. The tenor was basically, “Thank God for this company that has prospered in the free enterprise system, and which is dispelling socialism and communism.” It was really explicit.
That was all part of the backlash to the New Deal. Any form of collective welfare or social governance is a threat to capitalism in its ideal form. And MLM made that anti-collectivist rhetoric part of the pitch from the very beginning. The idea that you could build your own business as an independent contractor and that every single person could be the boss — it was incredibly individualistic and explicitly anti-socialist.
How exactly did they go about selling this to people? What did they say to get them in the door, and who was signing up in the beginning?
The first recruits were ideal nuclear family members in the postwar era, the figures who became avatars of our national identity — white men and women, parents in suburbia, who were being propped up and helped by all of those federal policies that were building the suburbs, that were bringing people out on the GI Bill to California, where all the MLMs were.
These were people who were benefiting from the welfare state that these guys hated so much. But they were also quite vulnerable to anxieties about moving up and true social class transformation. How are we going to get the house? How are we going to get the car? How are we going to secure this ideal Leave It to Beaver lifestyle? I think we really overestimate how easily that suburban dream came to even those people for whom it was intended. They were always kind of striving, not quite sure they’d officially made it.
White guys who were languishing in sales jobs were the primary target, and then their wives would come, too. They would do a one-two punch where the wife would drop in during the day when the housewives were at home and leave the literature, and then the husband would come by at night and close the deal with the two couples sitting at the kitchen table.
The thing that really differentiated this from a regular old direct selling pitch was the opportunity that you could be a boss, that the people you brought in would actually remain on your team, and that you could avail yourself of rewards based on their participation and not just yours. So you weren’t being brought in to be a cog in someone else’s machine. You were being brought in to be the top of your own machine as well as being someone else’s cog.
MLMs tapped into this total fantasy that even if I’m being exploited at the bottom of someone else’s pyramid, I could always grow a pyramid under me. It’s really a capitalist fantasy because, from the very beginning, it relied on this presumption of endless growth, which was very much in the air at the time. Coming out of World War II, the United States was going to be the world’s greatest superpower, and there was always going to be growth — more people, more markets, more products. Everybody needed to get in on this moment of infinity. Although, of course, mathematically that never works.
The thing that they used to tell that story was a supposedly amazing product that people would keep buying and buying and buying. Initially, it was vitamins. Immediately, however, people started their own companies and moved on to different products. Because the product is not real. It’s just covering up a Ponzi scheme. And those guys absolutely knew what they were doing.
As time goes on, these companies increasingly become scavengers at the periphery of the formal labor force. How did the demographics change from that original postwar group through the decades?
Within less than two decades, women became the predominant participants in multilevel marketing, and the products shifted to women’s products like makeup. That’s when you got Mary Kay, who copied the plan from some of the originators, but had a homespun, pseudofeminist girl boss origin story where she claimed to have come up with it on her own, which of course she didn’t. In the book, I document how her husband just worked for another MLM company.
Strangely, this actually happened because women were going to work more. You might think that women who were stuck at home would be the most robust recruiting base, but that’s not really true. What actually happened is that women began entering the workforce in droves. They typically worked as clerks, in service, or in retail, often on a part-time basis, and they wanted to supplement their income.
Why did they want so badly to supplement? We were bombarded with so much propaganda in the media and pop culture that sold the idea that families needed certain consumer goods to truly participate as citizens. Do you have the latest home gadgetry? Is your family going on vacation? How often and where? Both women and men were really vulnerable to that and wanted to supplement their incomes. But women were already doing the double duty of childcare and work. So they were really primed to need a more flexible type of arrangement. And that’s where MLM came in.
Unlike men who worked in factories and offices, women were often not yoked to a full-time employer arrangement. So they were the people for whom the pitch was most appealing and useful. The MLMs figured this out and were very direct in their pitch to women. They were saying to women, “You need a flexible opportunity to make some extra income for your family so you all can go on that vacation of your dreams.”
Now I think we need to explain to our readers what exactly is wrong with an MLM. There are physical products, right? How is this different from any other company that just sells products on the market?
MLM invented a new compensation system. Instead of being paid on what you sell, you’re paid on “purchase volume” — what you and your team buy. The more your team buys, the more rewards you get, theoretically forever.
The problem is that no one checks if anything is sold to retail consumers. I tell you, “Buy a thousand dollars of vitamins, they’re easy to sell,” but they’re not. Since I’m paid on your purchases, not sales, I only need you to buy in. You have no incentive to sell and are immediately encouraged to recruit. At every level, participants end up leading their own Ponzi schemes because they’re paid on recruitment, not sales.
Remember, the inventors of MLM were salesmen who actually did sell real products. What they realized is that door-to-door selling was ripe to become a new Ponzi iteration where the product covers up financial fraud. That’s the major innovation of MLM.
MLM language is riddled with inversions. The insistence that jobs are actually opportunities, workers are bosses, and even that consumption is production. Can you explain that last inversion?
Take this woman in my book who joins Mary Kay in 2013. When she buys $1,800 worth of makeup that her upline encourages her to buy, Mary Kay’s system literally calls this “production” and calculates it as $3,600 in retail sales based on the 50 percent discount she received. They’re taking her purchase — literally her consumption — and calling it production as if she’s creating something. She’s not. She’s just buying it.
Ultimately, it’s psychological warfare. The companies translate purchase volume into “retail volume” and claim multimillion-dollar sales based on what participants buy, not what’s actually sold to customers. We allowed an industry to grow where it guesses its production.
What do you mean by psychological warfare?
When you’re initially recruited, you’re told that everyone here gets cars, trips, and pays for college through sales. They make it seem easy and lucrative. Only after you’ve joined and invested do you learn that the product is incredibly hard to sell. After you’ve maxed out on friends, family, and Facebook acquaintances, your initial boost is over, and you discover it’s nearly impossible. Imagine selling wellness products door-to-door in 2025 when we have Costco. It makes no sense.
But there’s no time to internalize this realization, because now the sunk-cost fallacy has kicked in. You’ve spent money, and now you’re bargaining about how to get it back. So you have to recruit. In no time, you end up lying to yourself and then lying to others about how good the business is. You’re inducing people into a scheme where no one tells the truth. In a big MLM with millions of participants worldwide, this culture of dishonesty becomes massively toxic.
You’ve called MLMs the opposite of solidarity. That makes sense when we think of it as a workforce comprised of little fake entrepreneurs rather than self-conscious workers engaged in collective self-advocacy.
Yes, the entire model is isolating by design. Every person is the top of their own pyramid in a fixed hierarchy called the downline. Talking to someone in your same position is referred to as cross-lining, and it’s forbidden across MLMs. You can only pass negativity upward to your upline, who’s making money off you, so they’ll tell you to keep going. You only pass positivity downward, because you don’t want to discourage your downline.
I’m a union member, and this is truly the opposite of solidarity. Unions level the playing field with transparency and collective bargaining. MLMs forbid nonhierarchical relationships — only hierarchical ones exist. If I recruit someone great, I’ll always be above her, taking my cut. It’s also profoundly antidemocratic because no one moves up based on merit, only based on when they bought in.
One of the ironies is that it’s framed in this language of perfect economic rationality, but people will go twenty or thirty years watching their bank accounts get whittled away. Why do people stay in so long despite clearly not making money?
There are two levels. One, which I mentioned previously, is the sunk-cost fallacy. People have already spent so much money, and they need to believe they will make it back. Meanwhile, MLMs are coercive with constant conventions and content bombardment. You’re supposed to constantly consume MLM materials, which promise that success is around the corner. Your friends and family are probably also involved by that point.
But on a larger level, the scheme is so legitimized that it seems inconceivable that it would be wrong. MLM was legalized in 1979 when Amway, run by Betsy DeVos’s family, bought legal cover for this fraud. Since then, it has enriched many powerful people, including Donald Trump. When this goes to the very top with government buy-in, you actually can’t imagine that you’re being scammed.
Bob FitzPatrick calls it “the big lie” — once you accept something so big, you accept everything downstream of it. It’s almost impossible for people to understand how this could flourish globally with such official sanction and be straight fraud — not just exploitation but actual fraud.
There’s a dissenter survivor network that reminds me a little of Scientology — people who are traumatized and obsessed with figuring out what happened to them. They often describe it as a cult. And in the ’70s, as you observe in your book, there really were some outright cult formations in the MLM sphere. Can you talk about that?
William Penn Patrick was the most notorious practitioner. He learned the trade from Nutri-Bio, the country’s first pyramid scheme, then started his own MLM in San Rafael. He became a right-wing firebrand, ran against [Ronald] Reagan in 1966, was essentially a racist neocon. One of his early recruits was Werner Erhard, who started “est.” The two of them hatched this idea: Why waste time on MLM products when you could get people into self-development instead?
Patrick started Leadership Dynamics Institute, selling seminars using large group awareness tactics — breaking people down in weekend seminars where you’re berated, physically beaten, then built back up thinking you’ve transformed. He charged salesmen a thousand dollars for this. From that we get Lifespring, then Landmark Forum, which is a massive self-development MLM still in operation today.
Meanwhile, the self-help guru Tony Robbins connects directly to MLM through his mentor Jim Rohn, an early Nutri-Bio executive who also worked for the MLM Herbalife. Robbins has inspired who knows how many copycats. Now MLM has largely devolved into self-help. Many don’t even sell products anymore. The product is self-development.
As for outright cults, it didn’t stop in the ’70s. Keith Raniere, who started the sex-branding cult NXIVM, was an Amway distributor who learned the model there. NXIVM was structured like an MLM with team-based rewards.
Whether or not it meets the criteria for a cult, it’s clearly corporate fraud. Why isn’t it better regulated?
By the ’70s, the Federal Trade Commission (FTC) perfectly understood what multilevel marketing was up to. We have “pyramid scheme” as a term because of people’s recognition of what MLMs were doing. But when the FTC set its sights on Amway, the biggest MLM, the DeVos and Van Andel families were already major Republican donors. They were busy funding Reagan, starting the Heritage Foundation, and revitalizing the Chamber of Commerce.
By the time the FTC sued Amway in the mid-’70s, there was a huge backlash against government regulation. Amway led the charge to gut the FTC while being investigated by it. The agency put its hands up and accepted Amway’s rules. They settled for companies’ “self-regulation,” which, of course, means no real oversight.
Democratic presidents try stronger enforcement occasionally. Herbalife was sued under [Barack] Obama, for example. But they just fine companies and do nothing about the business model. MLM now has revolving-door relationships with FTC commissioners and a tremendous lobbying presence through the Direct Selling Association — the other DSA [Democratic Socialists of America], funnily enough, speaking of the opposite of solidarity.
How do MLMs connect to contemporary labor strategies like the misclassification of gig workers by Uber? That seems like a variation on a theme.
From the beginning, the door-to-door companies had this business model: we’re not responsible for these workers at all, and we’ll call it independent contracting. MLMs also pioneered draconian noncompetes in the 1950s and arbitration clauses to prevent lawsuits, which helped set the stage.
MLMs were first on the scene, but now they have many allies. They’re allied with Uber, Facebook, giant tech companies. When Lina Khan looked into rules making gig-worker classification narrower, the Direct Selling Association stood with the American Hospital Association, Netflix, even the New York Times. Anyone relying on contract labor wants what MLM has always had: total impunity when it comes to labor misclassification.
The Amway families, working through the Heritage Foundation and dark money networks, want the federal government to be nonexistent for worker rights but a powerful cudgel for quashing organizing. They helped overturn Roe v. Wade and the Chevron doctrine. Now Facebook, Google, and AI companies all want MLM-style self-regulation, claiming regulation stifles innovation.
It seems to me, having sat with your work, that MLMs exactly mirror the logic of capitalism. Basically you’re recruiting workers to uphold this inherently exploitative system on the basis that each of them, if they hustle and work hard, will be able to make it to the top, which obscures the reality that the system does not function unless most people are being exploited. The pyramid does not stand upright unless it has a much larger base at the bottom than at the top. That’s precisely how it is with capitalism writ large.
The thing nobody wants to say about capitalism and what’s obviously true about MLM is that both operate on extraction. They require one person at the top making profit generated by the work of the masses at the bottom. It’s not just that it creates that hierarchy — it requires it.
Once you see an MLM’s pyramid shape, it’s obvious. But look at Amazon — the same pyramid shape with people at the top profiteering exponentially off workers at the bottom. Nobody wants to say that the only way [Jeff] Bezos sits atop Amazon is with all those people at the bottom, and that the idea that any Amazon worker could become their own Bezos is impossible.
The lie that workers are told — that they’ll accrue enough capital to extract themselves from the structure — is a huge lie. If MLM guys in the ’50s thought maybe infinite expansion was possible, by now we’ve learned there’s not infinite abundance. That’s why products get more esoteric — AI, self-development — because we’re running out of physical things to tell this story with.
There’s something poetic about using MLMs to understand capitalism. It allows us to see that effective resistance lies in what MLMs forbid: solidarity, or as they would put it, cross-lining.
Exactly. What is a union one-on-one if not cross-lining? The hardest thing to understand, because it violates the logic of capitalism, is that your fate is tied up with someone else’s.
Talking to MLM people, it really gets into their heads that they’re worthless without constant hustling. Success is an individual endeavor, and it requires that they not only obsess over it but push people under them the same way. Getting out of MLM means waking up from the fantasy and refusing to participate in this nesting exploitation.
In MLM, people do leave, which is incredible. But it involves letting a dream die — the dream of being rich, being a capitalist, being on top. That’s what you have to let go of to be free.