Violence has been declining globally. Consider lynching in America.

Tuskegee University researchers looked for records of lynchings in newspapers published between 1882 – 1968 and generated this chart. The orange color are victims whose race is unknown. This isn’t a complete account of lynching victims. It is only a count of the ones that were recorded by newspapers and which were reviewed by the Tuskegee researchers. There were many more. For example, the Lynching in Texas project of Sam Houston University found public records of over 100 additional lynching victims in that state alone that Tuskegee had missed.

Tuskegee’s “white” category should be labeled “non-Black” because it also included Mexicans, Native Americans, Chinese, Jews, and Catholic immigrants. The KKK was rabid against Catholic immigrants and did not consider them white.  According to the Tuskeegee dataset, Texas lynched by far the most non-Black people, but most of them were Mexican-Americans according to the Lynching in Texas project. Many whites were lynched in Western states, and in the South there were also 148 black-on-black lynchings, 200 cases of white-on-white lynchings, and four incidences of black mobs killing whites recorded between 1882 and 1930.

The graph paints a picture of lynchings being common practice for meting out vigilante ‘justice’ against many races in 1882, but lynching soon morphed into a technique that was primarily used to terrorize Blacks in the South by 1900.

Lynching was such a celebrated part of life that participants paid professional photographers and made commemorative postcards to send to friends and family as you can see below. Photography was extremely expensive in at the time and was only afforded for commemorating particularly special occasions. Time magazine noted:

Even the Nazis did not stoop to selling souvenirs of Auschwitz, but lynching scenes became a burgeoning subdepartment of the postcard industry. By 1908, the trade had grown so large, and the practice of sending postcards featuring the victims of mob murderers had become so repugnant, that the U.S. Postmaster General banned the cards from the mails.

Naturally, given that lynchings were accepted as normal, nobody was punished for participating in a lynch mob. Arthur Raper investigated nearly one hundred lynchings and estimated that, “at least one-half of the lynchings are carried out with police officers participating, and that in nine-tenths of the others the officers either condone or wink at the mob action.” Despite being sanctioned by law enforcement, Arthur Raper’s study estimated that approximately one-third of the victims were falsely accused. Some mobs didn’t even correctly identify the person they lynched.

Lynchings were sometimes announced in newspapers to draw crowds and to give photographers time to prepare their equipment. Some attracted up to 15,000 people. Schools were sometimes cancelled and railroads sometimes ran special excursion trains to accommodate spectators. The photo below shows Jesse Washington, “a 17-year-old retarded black child“, who was killed by a crowd that was estimated at over 10,000 in Waco Texas in May 15, 1916.

They mayor initially resisted the mob which threatened to hang him for doing his job and trying to protect the unconvicted man. The lynch mob put a rope around the mayor’s neck and set the courthouse on fire in retaliation. Here is a later photo of Jesse Washington’s corpse showing a smiling youth among the people posing for a professional photographer behind Jesse’s charred remains.

Below is a postcard reading, “George and Ed SILSBEE HANGED by a MOB of CITIZENS IN FRONT OF JAIL. Jan. 20, 1900. Fort Scott Kan.” The back of the postcard advertised the photography studio that took the photo: J.V. DABBS PHOTOGRAPHER GROUND FLOOR STUDIO, Frames and Mouldings, 407 Market Street. FORT SCOTT, KANSAS.

This shows a mother and her fifteen-year-old son who were tortured by being dragged for miles before being hung for this commemorative postcard in Okemah, Oklahoma, in 1919.

Close to my home, Sheriff Sherman Eley was assaulted by a mob for not giving up the location of a Black man who was in custody.  Sheriff Eley’s home was ransacked, his sick infant daughter was taken as a hostage, and he was beaten to unconsciousness and suffered cuts and broken ribs.   The mob put a noose around his neck in downtown Lima and started to hang him, but a colleague stepped in and convinced Eley to tell where the ban was being held and he relented and told them that the Black man was being held at the Putnam County Jail.  The mob then drove to the Putnam County Jail, which would have likely been about an hour drive on the bumpy roads of the day.

They kidnapped Eley and took him with them, tied spread-eagle across the hood of a creamery truck they had commandeered.” Eley, “vomiting and slipping in and out of consciousness,” remembered little of it

Meanwhile the prisoner had been moved to Toledo and Eley escaped the mob.  Eley’s daughter Doris died soon thereafter. That was the last attempted lynching in Ohio, shown below.

limalynching 

My colleague, historian Perry Bush, researched this event and when the Lima News published a story about it in 2017, he learned that descendants of the people in the story had never heard anything about it. He also received a call warning him that some local people were offended and were threatening his safety, so the event was still raw a century later. 

The photo below shows well-dressed members of an Omaha, Nebraska lynch mob posing around the body of black man named Will Brown in 1919. The mob also attempted to hang the mayor and nearly killed him because the mob had been egged on by a rival political party that was stoking racial animosity in order to gain political power and defeat the mayor. Somewhere between 5,000 and 15,000 people participated in the lynch mob which also poured gasoline in the courthouse and lit it on fire and shot seven police officers in the frenzy of the lynching. Nobody served any term of imprisonment.

This kind of violence had probably been going on for centuries so the big question is why has it become so much rarer in the past century. Although there is less documentary evidence going farther back into the mists of history, there is still plenty of evidence for public executions and mob violence. The Salem witchcraft trials, the Boston tea party, and on and on. Steven Pinker has done the most thorough analysis of the decline in violence over the centuries. The world is much less violent today along most dimensions. For example, America is MUCH less likely to execute people.

in the United States in the 17th and 18th centuries, the death penalty was prescribed and used for theft, sodomy, bestiality, adultery, witchcraft, concealing birth, slave revolt, counterfeiting, and horse theft. We have statistics for capital punishment in the United States since colonial times. As you can see, in the 17th century a majority of executions were for crimes other than homicide. In current times, the only crime that is punished by capital punishment other than homicide is conspiracy to commit homicide.

The death penalty itself, of course, has been abolished in most of Europe… Currently, only Russia and Belarus have it had on the books.

But interestingly, even before capital punishment was abolished by the stroke of a pen, it had fallen into disuse. You can see that the percentage of European countries that actually carry out executions has always been far lower, and the decline began much earlier.

…Now the United States, of course, notoriously is the only Western democracy that has capital punishment (though only in two-thirds of the states), a number that has been dwindling. And to say that the United States has the death penalty is a bit of a fiction. If you look at the number of executions as a proportion of the population, it has been plunging since colonial times. Today, out of about 16,500 homicides per year, there are about 50 executions, and that rate has been in decline as well.

Here is a rough estimate of the homicide rate in New England from the National Academies:

And here is a graph from Claude Fischer (or see Lane Kenworthy)

We have longer-term data for homicide in Europe. Here is data from Michael Eisner. It is on a log scale so it diminishes the true decline in the homicide rate which is over 50 fold.

Bill Gates notes that Americans don’t just hurt each other a lot less, we also talk a lot more about rights:

Use of the terms civil rights, women’s rights, children’s rights, gay rights, and animal rights in English-language books, 1948-2000. These staggered rises tell a story. Each of the movements took note of the success of its predecessors and adopted some of the tactics, rhetoric, and most significantly, moral rationale. The Rights Revolutions have brought us measurable and substantial declines in many categories of violence.

Plus, worldwide deaths in warfare have been declining too:

Posted in Violence & Peace

Do we have a responsibility to develop more millionaire superheroes?

Peter Singer’s book called The Life You Can Save is about one of his most famous thought experiments:

Suppose on a walk you notice a young girl drowning in a lake. If you can swim, and you can save her life if you immediately jump in, you will feel some obligation to do so even if that will ruin a new suit worth $500. Singer points out that we wouldn’t think twice about ruining a pair of shoes that costs us hundreds of dollars. Peter Singer points out that it is irrational that people don’t feel any responsibility to spend the same amount on charities that can save the life of a child in a developing nation when we wouldn’t hesitate to ‘spend’ that amount by jumping into a lake to save a child.  Most of us in the rich world have the power to spend a few hundred dollars on those kinds of charities and instead we buy expensive clothes and other luxuries. 

If you do not have hundreds of dollars to give to these charities, you have no responsibility just like you would have no responsibility to save the drowning girl if you could not swim. You obviously have no responsibility to do something if you don’t have the power to do it. Thus power creates moral responsibility and the absence of power absolves it.

I’ve been documenting the lives of some remarkable people who have probably saved millions of lives through a breakthrough like vaccines and oral rehydration therapy and sanitation. Today those breakthroughs have given us both the power and the moral responsibility to use them rather than stand by and let millions of people die.

If someone had come up with these breakthroughs thousands of years ago, hundreds of millions of more lives could have been saved over the millennia.* For similar reasons, we now have an obligation to speed up lifesaving breakthroughs by spending a lot more on research to save more lives in the future. If we could produce another millionaire superhero a year sooner, it could save thousands more lives.

We aren’t doing nearly as much as we could be doing. Federal R&D spending was over three times higher in the 1960s as a percentage of national income. Plus, the majority of federal R&D spending has always been spent on a combination of military and space research which probably has a lower payoff for health and wellbeing than research on health and wellbeing.

For thousands of years there was no sustained progress in median living standards nor life expectancy until a couple centuries ago beginning in Europe.  Then know-how began growing faster than ever before and that changed everything.  Now productivity is stagnating again and part of that is due to stagnating investment and stagnating research

Just as people don’t feel the responsibility to save a child on the other side of the planet, we don’t feel the responsibility to save lives in the future by investing in our capacity to save lives and technologies to make the future better.  We even feel little responsibility to stop our environmental destruction that is making the future worse!

 

*Ok, some of you are probably thinking about the Malthusian equilibrium and worried that reducing mortality earlier might have caused overpopulation earlier, but I doubt it would have been much problem because there was always tremendous overpopulation. The world was close to the Malthusian equilibrium for almost all of history until a couple centuries ago. Plus, a reduction in mortality rate naturally brings down the human fertility rate because families adjust when more kids survive and when mortality declines, people naturally invest more in education and are more attracted to urban living which also reduces fertility and increases productivity.  It is a virtuous cycle with little demographic risk given that overpopulation was always a serious issue.

Posted in Millionaire Superheroes, Philosophy and ethics

How social media technologies took advantage of our psychological weaknesses and created an accidental revolutionary movement.

Netflix has a great documentary called The Social Dilemma about how social media companies are using algorithms and artificial intelligence to manipulate and addict us in order to make money. They might not have developed artificial intelligence to the point where it is better than human strengths, but they have already achieved increasing mastery over manipulating human weaknesses. This fundamental change in how people communicate and what we spend time thinking about is remaking society and has led to a rise in extremism everywhere.  In some places it has even caused genocide.

Ben Smith has been an eyewitness to this transformation of our media ecosystem as one of the founders of BuzzFeed because BuzzFeed was a pioneer at using social media to get attention. He tells the story of two of the most successful social media stars at BuzzFeed who moved on to become influencer entrepreneurs of the sort of right-wing voices that caused the assault on the capital last week. This story tells a lot about how the profit-seeking social media algorithms that thrive on pushing emotional “engagement” have produced this new political phenomenon that led to the riot in the capital building.

He fit in as well as anyone did at our Los Angeles studio, a place full of ambitious misfits with an unusual gift. They knew how to make web videos people wanted to watch.

His real name was Anthime Joseph Gionet, though he preferred others. His value to BuzzFeed was clear: He’d do anything for the Vine, the short video platform that had a brief cultural moment before being crushed by Instagram and Snapchat…

Once, he poured a gallon of milk on his face and a clip of it drew millions of views, back when mostly harmless stunts amused millions of American viewers on the platform.

He was, in that way, a natural for BuzzFeed when he arrived… and his job mostly consisted of editing down to six seconds the silly, fun videos… Within months, he took over a BuzzFeed Twitter account, too, drawing on his same intuition for what kind of video people would share.

We were better than anyone in those days at making things for social media… occasionally spectacular live streams, most famously the one where two of my colleagues exploded a watermelon, one rubber band at a time.

And so the language I heard from Mr. Gionet, now 33, on his livestream last Wednesday was familiar. “We’ve got over 10,000 people live, watching, let’s go!” he said excitedly. “Hit that follow button — I appreciate you guys.”

Mr. Gionet was standing inside the trashed office of Senator Jeff Merkley of Oregon, streaming from one of the few platforms yet to ban him, alongside other Trump loyalists who played with the telephone receiver and draped themselves over the furniture. It seemed an apt conclusion to a recent career arc that some might see as trolling or internet pranks, but is probably best described as performative violence.

After I saw Mr. Gionet, I called up some of my old colleagues, who recalled him with a mixture of perplexity and repulsion. He was sensitive and almost desperate to be liked, they said, once getting extremely upset when someone made fun of his thick mustache and blond mullet. Two of his closest friends at the office at the time had different ethnic backgrounds and gender identities than he did, and they sometimes bonded over a sense of being outsiders. One… remembered him as a sad character who didn’t really express political views beyond the broadly bro-ey and insensitive culture of Vine, and… confided that he was haunted by a lonely childhood in Alaska. He seemed, three of them said, to be missing something — to be hollow inside.

As the 2016 election took hold, he started to flirt with a political persona. He first put a Bernie Sanders portrait on his desk…. Then, he moved on to wearing MAGA hats around the office, which raised eyebrows among his… fairly apolitical, co-workers, though that was when some people still imagined the far right could be “ironic.”

When he left BuzzFeed… to work as the “tour manager” for Milo Yiannopoulos, a darling of the racist and anti-Semitic “alt-right,” colleagues were momentarily shocked…

Still, it’s not clear what Mr. Gionet actually believes, if anything. And really, I’m not sure I care.

…I can’t muster much pity for a guy who, before he was attacking his Capitol, spent his time shooting some kind of bottled irritant (he called it “content spray”) into the eyes of innocent people for YouTube views and shouting at store clerks who asked him to wear a mask.

To me, this story is about something different, a sort of social media power… that can exert an almost irresistible gravitational pull.

If you haven’t had the experience of posting something on social media that goes truly viral, you may not understand its profound emotional attraction. You’re suddenly the center of a digital universe, getting more attention from more people than you ever have. The rush of affirmation can be giddy, and addictive. And if you have little else to hold on to, you can lose yourself to it…

[For] Mr. Gionet… The only through line was his desire to build an audience. He was boosting Bernie Sanders before he was chanting anti-Semitic slogans in Charlottesville, Va., then temporarily recanting those extreme views and later committing violent crimes to get views on YouTube. He built an audience among coronavirus deniers and then, when he apparently contracted the disease, posted the screenshot of his own positive test to Instagram with a tearful emoji. A few weeks later, he joined the pro-Trump uprising in the Capitol.

“His politics have been guided by [viewing] metrics,” reflected Andrew Gauthier…
“You always think that evil is going to come from movie villain evil, and then you’re like — oh no, evil can just start with bad jokes and nihilistic behavior that is fueled by positive reinforcement on various platforms.”

And so Mr. Gionet’s story isn’t quite the familiar one of a lonely young man in his bedroom falling down a rabbit hole of videos that poison his worldview. It’s the story of a man being rewarded for being a violent white nationalist, and getting the attention and affirmation that he’s apparently desperate for…

When he was arrested in Scottsdale, Ariz., last month for spraying mace into the eyes of a bouncer, an officer reported that Mr. Gionet “informed me that he was a ‘influencer’ and had a large following on social media,” according to a police report. He was released on his own recognizance, a Scottsdale police spokesman said, and is awaiting trial…

I didn’t work directly with Mr. Gionet. But in 2012, I did hire a writer named Benny Johnson who was cultivating a voice that blended social media savvy and right-wing politics. I thought, wrongly, of his politics at the time as just conservative…

I was slow to realize that his interests weren’t journalistic, or even ideological, as much as they were aesthetic, thrilled by the imagery of raw power. In the tradition of authoritarian propagandists, he was awed by neoclassical buildings, guns and, later, Donald Trump’s crowds. And, after we fired him for plagiarism in 2014, he went on to lead the content arm of Mr. Trump’s youth wing, Turning Point USA, and host a show on Newsmax. Last week, he was cheerleading attempts to overturn the election (though he pulled back… and later blamed leftists for it). He’s also selling his skills in the “viral political storytelling” … to a generation of new right-wing figures like Representative Lauren Boebert, who has won attention for vowing to bring her handgun to work in Congress…

While we were refining the new practice of social media at BuzzFeed, we were slow to realize that the far right was watching closely and… imitating us… Steve Bannon, who ran Breitbart, recalled to a writer… that he was surprised we hadn’t turned BuzzFeed to pure Bernie Sanders boosterism, as Breitbart did for Donald Trump. He noted, probably correctly, that the traffic for a pro-Sanders propaganda outlet would have greatly exceeded what we got for fair coverage of the Democratic primary…

I’m already hearing what seem to be two competing explanations of what happened in Washington last week: that the overwhelmingly white, sometimes overtly racist, mob embodied old, deep unexpurgated American evil; or that social media reshaped some Americans’ blank slate identities into something radical.

But Mr. Gionet’s story shows how those explanations don’t really conflict. A man his colleagues saw as empty and driftless turned his identity into a kind of a mirror of that old American evil, and has become what many Americans told him they wanted him to be.

At one point in Mr. Gionet’s livestream during the siege of the Capitol, an unseen voice off camera warns that President Trump “would be very upset” with the antics of the rioters.

“No, he’ll be happy,” Mr. Gionet responded. “We’re fighting for Trump.”

This story helps explains why the mob attack on the capital was so performative and so many participants were wearing GoPro cameras and carrying selfie sticks. Many were obsessed with selfies and live streaming for their followers on social media who were egging them on. But the result was not just theatrical.  It was deadly. Their attack in the capital building left five people dead and at least 50 police officers injured. By comparison, the last mob assault on a federal building that killed people was in Benghazi.  The Benghazi attack actually resulted in fewer Americans getting killed and much fewer injuries.  The failure to protect Benghazi led to over two years of congressional inquiries and was still a major issue during the 2016 presidential election, four years later. 

It is fortunate that the mob of misguided Trump fans who broke the law to seek attention at the Capital weren’t enabling more hard-core terrorists. If it happens again, the hard-core terrorists will be better prepared to take advantage of the situation and we might not be so fortunate.

Posted in Pence2018

Slavery was a core part of civilization for most of history

Anarchists are hard to find nowadays, and scholars who advocate anarchy are extremely rare, but James C. Scott is one such scholar and his work is excellent even if I disagree with his anarchist leanings.  Although his work is highly critical of what he calls “states” he defines a state as having a hierarchical power structure that can project power over more than perhaps a couple thousand people and across a sizeable area.  He believes that small-scale societies provide a better way of life than states.

In his book, Against The Grain, Scott follows in Jared Diamond‘s footsteps in studying the rise of early agriculture and then early civilizations. Scott makes a persuasive case that “states” (which I think are more aptly called empires) did not arise until thousands of years after agriculture first developed and he explains the conditions that are conducive to the first empires are relatively rare around the world.

The first empires required high population densities which required highly-productive agriculture. They first arose in the loess soils of the fertile crescent, Nile valley, and Yellow River. Scott claims that flat terrain was important for easy irrigation and farming and that slow rivers were important for transportation of soldiers for policing and for trade. This doesn’t explain other cradles of civilizations like central Mexico or the Incan highlands, but his logic makes sense.

One of the biggest problems with Scott’s analysis is his omission of Malthusian dynamics. Scott (and Jared Diamond) believe that small-scale societies were much better off than imperial societies because there was much more disease and famine in imperial states than in small-scale civilizations. This is well documented, but that doesn’t mean that small-scale civilizations were free of trouble.

Scott recognizes that the population growth rate of small-scale societies was slower than the population growth of civilizations and if people weren’t dying off from disease and famine, what kept the populations so small? Steven Pinker‘s answer is violence. Pinker finds evidence that violence in hunter-gatherer societies and other small-scale groups was much higher than in later empires. Scott argues that fertility was lower in hunter-gatherer societies, but that is not clear and what is clear is that hunter-gatherers were healthier and physically more able to have more children and that they did indeed have high fertility rates. The average fertility could not have been much less than four children per woman and that means that at least half of people born in hunter-gatherer societies would have to die before they could reproduce on average in order to explain approximately zero long-run population growth in small-scale societies for hundreds of thousands of years. The most likely reason for high mortality in small-scale societies was violent death.

Empires do engage in massive warfare, but many hunter-gathers were famously combative and empires at least suppress violence within their boundaries.

Scott also documents that slavery was endemic in all early civilizations in many different forms. He recognizes that it was also common in small-scale societies, but he speculates that it was worse in empires. Here is a quote from V. Gordon Childe’s book, Man Makes Himself:

“men as well as animals can be domesticated. Instead of killing a defeated enemy, he might be enslaved; in return for his life he might be made to work. This discovery has been compared in importance to that of the taming of animals… By early historic times slavery was a foundation of ancient industry and a potent instrument in the accumulation of capital.”

In modern civilizations, the state takes resources via taxation. In early civilizations, taxation was difficult because there was little surplus and money was rarely used by most people. Scott argues that grain production was essential to the rise of taxation because it was a standardized unit of production that was relatively easy to measure. In essence, grain served as a kind of money for the purposes of measuring the value of production that states could tax.

[A] peasantry… will not automatically produce a surplus that elites might appropriate, but must be compelled to produce it. Under the demographic conditions of early state formation, when the means of traditional production were still plentiful and not monopolized, only through one form or another of unfree, coerced labor—corvée labor, forced delivery of grain or other products, debt bondage, serfdom, communal bondage and tribute, and various forms of slavery—was a surplus brought into being.

Each of the earliest states deployed its own unique mix of coerced labor, as we shall see, but it required a delicate balance between maximizing the state surplus on the one hand and the risk of provoking the mass flight of subjects on the other, especially where there was an open frontier.

Only much later, when the world was, as it were, fully occupied and the means of production privately owned or controlled by state elites, could the control of the means of production (land) alone suffice, without institutions of bondage, to call forth a surplus. So long as there are other subsistence options, as Ester Boserup noted in her classic work, “it is impossible to prevent the members of the lower class from finding other means of subsistence unless they are made personally unfree. When population becomes so dense that land can be controlled it becomes unnecessary to keep the lower classes in bondage; it is sufficient to deprive the working class of the right to be independent cultivators”—foragers, hunter-gatherers, swiddeners, pastoralists.

There were various tools used to prevent slaves from escaping when they came from nearby. Male slaves were often chained or imprisoned in a work site at a mine or on a galley of a ship. Slaves were separated from their relatives and mixed with unrelated ethnic groups that had no history of trusting one another. Athens and Rome were seafaring powers who brought slaves from multiple places across the Mediterranean which made escape back to home virtually impossible. For nearby slave raids it was common practice that:

The towns and villages of the defeated peoples were generally destroyed so that there was nothing to go back to. In theory, the plunder belonged to the ruler, but in practice the loot was divided up, with the generals and individual soldiers taking their own livestock and prisoners to keep, ransom, or sell.

For similar reasons, it was hard for European colonists to enslave Native Americans in North America.  They had an easy time slipping away back to native populations (plus, they were susceptible to numerous Old World diseases and kept dying off).  Native Americans were the first slaves but African slaves had a much harder time escaping and finding refuge in native communities and they were already resistant to disease so African slavery displaced Native American slavery in the South although there were still some Native American slaves into the 1800s.  The Spaniards had an easier time taking over the slave traditions of the Aztec and Incan empires where conscripted labor was already a well-established institution of empire.  Egypt had an easier time preventing runaways because it was surrounded by desert.

Scott says that early warfare was more often about capturing slaves than capturing territory. One obvious advantage of capturing slaves was that territory is harder to control than just some of the people of a territory and slaves were easier to transport than physical goods and furthermore, captured slaves were used as beasts of burden to carry goods too.

Warfare in [Mesopotamia] beginning in [3,500] and for the next two millennia was likewise not about the conquest of territory but rather about the assembling of populations…

Oddly, I was never taught in world history class about just how central slavery was to the civilizations we studied. For example, thinkers that we respect like Aristotle and the Apostle Paul thought that slavery was natural and necessary because it was common nearly everywhere.

Slavery was not invented by the state. Various forms of enslavement, individual and communal, were widely practiced among nonstate peoples… [But it] would be almost impossible to exaggerate the centrality of bondage, in one form or another, in the development of the state until very recently. As Adam Hochschild observed, as late as 1800 roughly three-quarters of the world’s population could be said to be living in bondage.9 In Southeast Asia all early states were slave states and slaving states; the most valuable cargo of Malay traders in insular Southeast Asia were, until the late nineteenth century, slaves…

Moses Finley famously asked, “Was Greek Civilization based on Slave Labour?” and answered with a resounding and well-documented yes.11 Slaves represented a clear majority—perhaps as much as two-thirds—of Athenian society, and the institution was taken completely for granted; the issue of abolition never arose. As Aristotle held, some peoples, owing to a lack of rational faculties, are, by nature, slaves and are best used, as draft animals are, as tools. In Sparta, slaves represented an even larger portion of the population. The difference… was that while most slaves in Athens were war captives from non-Greek-speaking peoples, Sparta’s slaves were largely “helots,” indigenous cultivators conquered in place by Sparta and made to work and produce communally for “free” Spartans…

Imperial Rome… turned much of the Mediterranean basin into a massive slave emporium. Every Roman military campaign was shadowed by slave merchants and ordinary soldiers who expected to become rich by selling or ransoming the captives they had taken personally. By one estimate, the Gallic Wars yielded nearly a million new slaves, while, in Augustinian… Italy, slaves represented from one-quarter to one-third of the population. The ubiquity of slaves as a commodity was reflected in the fact that in the classical world a “standardized” slave became a unit of measurement [of value].

Thus slaves were so common in the Roman marketplace that they served one of the core functions of money for wealthy Romans. Slaves were also a measure of status and wealth.

…If the elite households of Greece or Rome are any indication, a large part of their claim to distinction was the impressive array of servants, cooks, artisans, dancers, musicians, and courtesans on display.

We don’t have many good records about the percent of ancient Mesopotamia that was enslaved partly because slaves were more like domesticated animals than people and there was little effort to record the census of domesticated animals nor slaves. Scott says slaves were, “wholly equivalent to domestic animals in status.” Surviving written documentation is scarce after so many thousands of years, but one of the few records that exists is for the city of Uruk

Slavery [in ancient Mesopotamia], while hardly as massively central as in classical Athens, Sparta, or Rome, was crucial for three reasons: it provided the labor for the most important export trade good, textiles; it supplied a disposable proletariat for the most onerous work (for example, canal digging, wall building); and it was both a token of and a reward for elite status…

The most unambiguous category of slaves was the captured prisoner of war. Given the constant need for labor, most wars were wars of capture, in which success was measured by the number and quality of captives—men, women, and children—taken…

[In Uruk] state-supervised workshops producing textiles that engaged as many as nine thousand women. They are described as slaves in most sources but also may have included debtors, the indigent, foundlings, and widows—perhaps like the workhouses of Victorian England. Several historians of the period claim that both women and juveniles taken as prisoners of war, complemented by the wives and children of debtors, formed the core of the textile workforce. Analysts of this large textile “industry” stress how critical it was to the position of elites, who were dependent for their power on a steady flow of metals (copper in particular) and other raw materials from outside the resource-poor alluvium. This state enterprise provided the key trade good that could be exchanged for these necessities. The workshops represented a sequestered “gulag” of captive labor that supported a new strata of religious, civil, and military elites. Nor was it insignificant demographically. Various estimates put the Uruk population at around forty thousand to forty-five thousand in the year 3,000 BCE. Nine thousand textile workers alone would represent at least 20 percent of Uruk’s inhabitants, not counting the other prisoners of war and slaves in other sectors of the economy…

slaves and prisoners of war… were not well treated. Many are shown in neck fetters or being physically subdued. “On cylinder seals we meet frequent variants of a scene in which the ruler supervises his men as they beat shackled prisoners with clubs.”21 There are many reports of captives being deliberately blinded, but it is impossible to know how common the practice was. Perhaps the strongest evidence of brutal treatment is the general conclusion by scholars that the servile population did. not reproduce itself. In lists of prisoners, it is striking how many are listed as dead—whether from the forced march back or from overwork and malnutrition is not clear.22 Why valuable manpower would be so carelessly destroyed is, I believe, less likely to be owing to a cultural contempt for war captives than to the fact that new prisoners of war were plentiful and relatively easy to acquire…

Plus, brutality was a way to motivate slave labor and a tool of control to prevent slave rebellion.

[The Qin dynasty of China much like the Han dynasty also had] markets for slaves in the same way as it had markets for horses and cattle. In areas outside dynastic control, bandits seized whomever they could and sold them at slave markets or ransomed them. The capital of both dynasties was filled with war captives seized by the state, by generals, and by individual soldiers. As with most early warfare, military campaigns were mixed with “privateering,” in which the most valuable loot comprised the number of captives who could be sold. It seems that much of the cultivation under the Qin was carried out by captive slaves, debt slaves, and “criminals” condemned to penal servitude…

slavery, in the form of war captives that it usually took, had several advantages over other forms of surplus appropriations. The most obvious advantage is that the conquerors take for the most part captives of working age, raised at the expense of another society, and get to exploit their most productive years. In a good many cases the conquerors went out of their way to seize captives with particular skills that might be useful—boat builders, weavers, metal workers, armorers, gold- and silversmiths, not to mention artists, dancers, and musicians…

Women [of reproductive age] and children were particularly prized as slaves. Women were often taken into local households as wives, concubines, or servants, and children were likely to be quickly assimilated, though at an inferior status. Within a generation or two they and their progeny were likely to have been incorporated into the local society—perhaps with a new layer of recently captured slaves beneath them in the social order. If manpower-hungry polities like, say, Native American societies or Malay society historically are any indication, it is common to find pervasive slavery together with rapid cultural assimilation and social mobility. It was not uncommon, for example, for a male captive of the Malays to take a local wife and, in time, organize slave-taking expeditions of his own. Providing that slaves were constantly being acquired, such societies would remain slave societies, but, viewed over several generations, earlier captives would have become nearly indistinguishable from their captors. Women captives were at least as important for their reproductive services as for their labor. Given the problems of infant and maternal mortality in the early state and the need of both the patriarchal family and the state for agrarian labor, women captives were a demographic dividend. Their reproduction may have played a major role in alleviating the otherwise [high mortality rate of Malthusian societies]…

As earlier captives and their progeny were incorporated into the society, the lower ranks were constantly replenished by new captives, further solidifying the line between “free” subjects and those in bondage, despite its permeability over time.

One reason for the fluid nature of class structure in which slaves could become free was the common interbreeding between elite men and their female slaves who sometimes were even elevated to the status of a concubine or wife. Unlike with racial slavery of the American South, in most of the ancient world there was usually little difference in physical appearance between slaves and owners and race was not an important concept. Plus, the elites were always wanting more laborers for manufacturing trade goods, infrastructure, and food and had to constantly replace laborers as they died off from malnutrition, sickness, and abuse.

I cannot resist the obvious parallel with the domestication of livestock, which requires taking control over their reproduction. The domesticated flock of sheep has many ewes and few rams, as that maximizes its reproductive potential. In the same sense, women slaves of reproductive age were prized in large part as breeders…

As for male slaves, they were often separated from the women and children and sent to do other work:

in the Greco-Roman territories they were deployed as a kind of disposable proletariat in the most brutal and dangerous work: silver and copper mining, stone quarrying, timber felling, and pulling oars in galleys. The numbers involved were enormous, but because they worked at the sites of the resources, they were a far less visible presence—and far less a threat to public order—than if they had been near the court center. It would be no exaggeration at all to think of such work as an early gulag, featuring gang labor and high rates of mortality. Two aspects of this sector of slave labor deserve emphasis. First, mining, quarrying, and felling timber were absolutely central to the military and monumental needs of the state elites…

There is a good chance than any time you see a monumental work of architecture or fortification of the ancient world that it was mostly constructed with slave labor.  Remember that the next time you see the Acropolis of Athens, pyramids of Giza, the Great Wall of China, or any other tourist attraction that was built in ancient empires.

The luxury of having a disposable and replaceable [workforce] is that it spared one’s own subjects from the most degrading drudgery and thus forestalled the insurrectionary pressures that such labor well might provoke, while satisfying important military and monumental ambitions. In addition to quarrying, mining, and logging, which only desperate or highly paid men will undertake voluntarily, we might include carting, shepherding, brick making, canal digging and dredging, potting, charcoal making, and pulling oars on boats or ships.

Thus, a slave population also secured the ruling elites in their power by simultaneously elevating a class of supporters who owned the slaves and although they might have to pay taxes or tribute to the elites at the top of the hierarchy, at least they were spared the drudgery of producing the tax by having their own slaves.

Max Weber’s concept of “booty capitalism” seems applicable… “Booty capitalism” simply means, in the case of war, a military campaign the purpose of which is profit. In one form, a group of warlords might hatch a plan to invade another small realm, with both eyes fixed on the loot in, say, gold, silver, livestock, and prisoners to be seized. It was a “joint-stock company,” the business of which was plunder. Depending on the soldiers, horses, and arms that each of the conspirators contributes to the enterprise, the prospective proceeds might be divided proportionally to each participant’s investment. The enterprise is, of course, fraught, in as much as the plotters (unless they are merely financial backers) potentially risk their lives… In many cases—in early Southeast Asia and in imperial Rome—war was seen as a route to wealth and comfort. Everyone from the commanders down to the individual soldier expected to be rewarded with his share of the plunder.

In my history classes, slavery was treated as a peculiarly American phenomenon, but as Thomas Sowell and Stanley L. Engerman and many other scholars have pointed out, slavery was practiced on every continent (except Antarctica) throughout history and until a couple centuries ago, most people accepted slavery as natural or inevitable. Jeremy Black agrees with this perspective although he clarifies that slavery takes many different forms in different societies.  Mr. Black argues that totalitarian societies like the USSR and Communist Cambodia made widespread use of state-sponsored slavery through their gulag “work camps” where prisoners were forced to work without pay, often without hope of manumission.  Similarly, the Jim Crow South also re-enslaved a remarkable percentage of their Black community by imprisoning them often on false pretenses and using prisoners for forced labor.

Mr. Black argues that capitalism ultimately led to a dramatic reduction in slavery, but this is misleading because capitalism enthusiastically exploited slavery and made it more entrepreneurial, monetized, and globalized.  Before capitalism, slavery was usually more about one’s place in a social hierarchy.  In tribal-based societies, someone who didn’t have strong connections to a family might need to be a slave just to survive, but slaves could eventually rise in status (like in the Biblical story of Jacob) by proving loyalty and worth to the family.  A slave’s status often functioned on a continuum with roles in a family hierarchy and might not be very different from the status of biologically-related women in some societies.  In some societies, high-status slaves could themselves own other slaves!

So if capitalism did not lead to the global abolition movement, what did?  Ultimately it was the increase in bargaining power of workers to demand greater wages and rights.  The same factors that eliminated slavery also caused rising wages and working conditions for ordinary people.  What increased the bargaining power of workers?

1. Physical capital accumulation.

Mr. Black gets partial credit for naming capitalism because capitalism did help produce capital accumulation, but capitalism also produced the vast international slave trade and massive monocultures of chattel slavery in the production of American cotton, sugar in the Caribbean and Brazil, dates and pearls in the Persian Gulf, and many other examples.

To understand how capital led to the abolition of slavery, we have to define capital in a specific way.  The broadest definition of capital is simply wealth and slaves were the dominant form of wealth in wealthy slave societies, so the accumulation of wealth alone did not cause the abolition movement.  For example, slaves accounted for almost 1/3 of the total wealth of the United States at the time of the American Revolutionary War and approaching half of total wealth in the slave states.

united_states_with_slavery-0

The definition of capital I’m using here is “PHYSICAL capital” (as opposed to human capital or financial capital or natural capital, etc.).  Physical capital is something that is produced at a sacrifice that makes you more productive.  In other words it is our tools, machinery, and infrastructure.   Physical capital is valuable in proportion to the difficulty of producing it and it is always easier to destroy it than to create it (due to the 2nd law of thermodynamics).

That ease of destruction gives workers more bargaining power.  A new bulldozer that costs $200,000 can easily be sabotaged by disgruntled workers with a little sugar in the gas tank or a little sand in the gearbox or a little nick on a radiator hose which can result in tens of thousands of dollars in repair costs and it will be very hard to figure out who caused the problem.  Valuable physical capital gives workers more leverage because owners really don’t want disgruntled workers with nothing to lose.

2. Complex work

The more complex an economic system is, the more decisions each worker must make.  Decisions require autonomy which is the opposite of slavery.  Plus, psychologists have known since 1908 that too much extrinsic pressure leads to worse decisions because people clutch.  The only kind of work that responds well to extrinsic pressure is routine work like digging ditches.  When even rudimentary cognitive skill or creativity is required, extrinsic pressure tends to lead to worse performance.

3. Interdependent work with multiple bottlenecks in a production process

When a cotton-picking slave does poor work, it has little effect on the productivity of anyone else.  But when one assembly-line worker does poor work, it reduces the productivity of all the other workers on the same line by the same amount.  For example, the speed of an entire assembly-line is determined by the slowest worker and if anyone slows down, that slows everyone down.  Similarly, if just one person makes an error which causes the product to be defective, it doesn’t matter if everyone else does perfect work.  The product is still worthless.  Each person whose job is a kind of bottlenecks in a production process has leverage for bargaining for more money.

4. Difficult to measure performance

In many jobs, it is hard to measure whether someone is working hard or not.  When it is impossible to monitor someone’s work, it is impossible to use extrinsic motivation and intrinsic motivators become more important.

Scott points out that the difficulty in measuring output was the reason why empires could only begin in places with highly-productive grain agriculture because it was too hard for central management to tax other kinds of production.  Scott says grain production was uniquely easy to tax in the ancient world (although woven textiles were similarly easy to tax) and these activities were also amenable to slave production because output was relatively easy to measure and extract. 

5. Other management methods have become more efficient

Powerful people can use force (slavery), payment or leadership to motivate people below them in a social hierarchy.  In primitive economies with little monetary exchange, payment was difficult to arrange, and leadership persuasion was limited to the number of people who could listen in the same physical space, so force & slavery was relatively more important. Nassim Taleb argues that Roman elites preferred slaves for important tasks like taking care of large estates because slaves could be tortured if the task wasn’t done well and employees literally had less skin in the game. But there are more ways to motivate workers nowadays and it was never clear that torture was ever the best way to motivate workers.  That is why some slave owners didn’t torture their slaves; some even paid their slaves a wage.

But the increasing monetization of economic activity has changed everything.  It made it feasible to tax more and more activities which has facilitated the growth of governments, and in parallel, it has also made it possible to create large hierarchical organizations like corporations that motivate workers through monetary wages.  Money is a better motivator for most modern production than slavery.

The advent of mass communication technologies beginning with the printing press have made it easier to influence and coordinate masses of people through verbal persuasion too. Educational systems create habits of obedience and norms of compliance in workers.  Mass communication technologies and monetization created alternate routes of influence that diminish the utility of using force.   

5. Other factors?

I’m probably missing something.  Send me an email if you think of more.

Today slavery is illegal everywhere for the first time in human history

The last countries to abolish it were Saudi Arabia in 1962, and Mauritania in 1980. This graph by Stephen Pinker shows when it happened:

slavery

There have always been some individuals who have had moral qualms about slavery, but it was considered good or at least normal by the most powerful people in nearly every country in the world until a couple centuries ago. 

Although slavery is universally condemned today, it still lives on according to a National Geographic article called “21st Century Slaves“:

There are an estimated 27 million men, women, and children in the world who are enslaved — physically confined or restrained and forced to work, or controlled through violence, or in some way treated as property.

Therefore, there are more slaves today than were seized from Africa in four centuries of the trans-Atlantic slave trade [11 million total, and about 450,000, or about 4% of the total, who were brought to the United States]. The modern commerce in humans rivals illegal drug trafficking in its global reach—and in the destruction of lives.

In theory slavery should be more profitable today than ever before because wages are MUCH higher than the cost of subsistence whereas for most of history it cost about the same amount to pay for a subsistence wage laborer as to feed a slave (unless the slave was being worked to death which was also common).  The fact that wages in the slave states of the US were among the highest in the world was one of the economic incentives for slavery there.  It saved a lot of money relative to paying a wage.  The fact that slavery is so much higher today than in Malthusian times helps explain why it still exists despite universal approbation. 

When slavery was legal, its profitability (or lack thereof) helped explain why it was more likely to exist in some places and occupations than others.   For example, David Friedman argued (in chapter 15) that slavery wasn’t profitable in Britain and France during the period when it was taking off in the American colonies.  Britain tried using prisoners to do forced labor in maintaining the Thames River, but the value of their labor was less than the cost of maintaining the prisoners.  Similarly, France succeeded in using forced labor as galley rowers, and tried using them in the arsenal at the port of Marseilles but the practice wasn’t profitable enough to spread.  Wages in Europe were lower than in the Americas which meant that slavery was more profitable in the Americas, but slave labor was only profitable if it was cheap to keep slaves from escaping (such as on the galley of a ship) and easy to measure if they are working hard (also simple on a galley).  In most circumstances, it was cheaper to just hire someone for a wage.  Indeed, slave owners have sometimes decided to pay their slaves a wage to incentivize them to work harder in some kinds of jobs. 

In the northern part of the United States, slavery didn’t work as well because there was more physical capital in factories and motivating using force didn’t work as well in northern industries as in the cotton industry in the South.  Even in the South, slavery didn’t take off in some kinds of work like farming tobacco because that kind of work was never complementary with slavery. 

Posted in Development

Unions and the mafia


There is very little scholarly research about unions and organized crime according to the article and book I found on the topic. It may be that the topic now seems unimportant because another article said that the mafia wasn’t particularly involved by the 1990s.  The book said that the US is the only nation in the developed world where unions have been repeatedly infiltrated by organized crime and it argues that that is one reason why the US is less unionized than most rich nations.  All of the scholars agreed that mafia involvement was bad for unionization because the mafia makes money by extracting money from the unions and extorting businesses which reduced union jobs and reduced the benefits of unions for workers.  Mafia involvement was also politically disastrous because it helped turn public sentiment against unions in the US. If you do a Google search you will find lots of anti-union organizations because corporate owners are happy to fund them and they talk a lot about mafia involvement in unions, so evidently they think it helps reduce political support for unions.

Although the mafia may have helped destroy the union movement in the US, other forces are much more important for explaining both the dramatic rise unions and their fall. Unionization had already began to fall when the FBI finally began cracking down on labor racketeering (as mafia involvement is called) in the 1970s.  The mafia’s involvement in unions was mostly destroyed by the end of the 1990s or shortly thereafter (according to one researcher and the  FBI) but unionization has continued to decline since then.  Plus, there were unions without organized crime such as the Congress of Industrial Organizations (CIO) that were not infiltrated by the mob whose fortunes mirrored with the rest.  Today, the three biggest unions in America are unions that never had mafia ties:  the National Education Association of the United States (teachers), Service Employees International Union (health and gov’t), and the American Federation of State, County, and Municipal Employees.

As this list shows, the only unions that have continued to thrive in the past half century are the unions whose employees are mainly funded by government: teachers, health workers, police, firefighters, and other government employees. These are also the only unions that have never been opposed by a concentrated interest group (corporate owners).

Posted in Labor

Why buy a lotto ticket when other kinds of gambling are much more profitable?

The lottery is much less efficient than most form of gambling than most because each lottery ticket has an expected loss of more than 50% after taxes whereas slot machines have an expected loss of only about 10% and the stock market actually has a real expected gain of about 7% per year in the long run if stocks are picked randomly. (Unfortunately, most people, including experts, do worse than random when they put effort into deliberately picking individual stocks). Although the lottery is inefficient it appeals to the minority of Americans who buys lottery tickets.

But why buy lotto tickets when there are much more efficient ways to gamble? Ben Orlin wrote a great explainer for all the theories why people buy lotto tickets, but only a few theories explain why anyone would prefer a gamble that is so much worse than most other gambling opportunities. I think the best explanation is The Dreamer. A lotto ticket is like a movie ticket for daydreams in which the buyer is the star of the show. Because the maximum potential lotto win is bigger than in any other gamble, it helps paint a more dramatic possible life story than any other form of gambling with smaller payouts.

Posted in Labor

How pyramid schemes work

Gaby Del Valle investigated multilevel marketing companies and found.

According to the Direct Selling Association, the multilevel marketing (MLM) industry’s lobbying arm, one in six American households is involved in the industry. Most MLM salespeople don’t make a ton of money — a 2017 report by the Federal Trade Commission found that 99 percent of MLM sellers actually lose money. The website Magnifymoney recently polled 1,049 MLM sellers across various companies and found that most sellers make less than the equivalent of 70 cents an hour. Nearly 20 percent of those polled never made a sale, and nearly 60 percent earned less than $500 in sales over the past five years.

Similarly, according to a study released by AARP Foundation:

Among the more than 20 million Americans who participate or have participated in multilevel marketing (MLM) organizations, 90 percent say they got involved to make money. However, nearly half (47 percent) lose money and a quarter (27 percent) make no money.

Those surveys actually paint the industry in a pretty generous light compared with some other researchers. A study by the Consumer Awareness Institute found that 99 percent of MLM sellers lose money. The FTC found that even the top 1% BIGGEST Amway sellers in Wisconsin lost money on average and less than one tenth of one percent (0.001) of NuSkin sellers earned a profit (although the insiders at the top did make millions of dollars!). The FTC analyzed 29 MLM companies including Herbalife, Sunrider, and Tupperware. At all of the MLMs studied, more than 99% of participants lost money. 99.7% of Amway sellers lost money in the UK too.

Every study agrees that MLMs are unprofitable for most sellers among the bottom 99% because there are inherent problems with the MLM supply chain.  It is comically inefficient at getting products from manufacturers to consumers and that leads to excessively high prices.  

And the growth of MLMs is a movement in the opposite direction of technological advances are moving the rest of retailing. Technological change over the past century has tended to cause disintermediation (also known as vertical integration) in retail which cuts out as many middlemen as possible.   

Before the internet, there were door-to-door traveling salesmen who had a supply chain with many middlemen that looked like this:

Manufacturer: $50 cost + $50 markup

Distributor: $100 cost + $30 markup

Door-to-door Retailer: $130 cost + $50 markup

Consumer: $180 cost paid

This supply chain has the so-called “double” markup problem even though there is actually a triple markup. Each level has an incentive to markup the price as much as the next level will bear which creates inefficiently high prices. The optimal, profit-maximizing markup is determined by the elasticity of demand, but each level of markup has an incentive to maximize their share of the markup and when that happens at every part of the supply chain the end result is an inefficienly high price that hurts everyone in the supply chain because a lot of customers stop buying because the price is too high. Disintermediation is what all big retailers have done. They cut out middlemen between the manufacturer and the consumer. They buy directly from manufacturers and then add only about a 30% markup which is a lot smaller than the old markup for labor-intensive sales methods like door-to-door and MLM:

Manufacturer: $50 cost + $50 markup

Big Retailer: $100 cost + $30 markup

Consumer: $130 cost paid

This supply chain only has a double markup problem because disintermediation eliminated some of the extra markups in the supply chain and achieved greater economies of scale and higher profits because greater efficiency leads to a lower price which boosts the quantity of sales. If it were profit maximizing for big retailers to charge $180, they would do so, but the fact that they charge less means that eliminating the markup of an intermediary and thereby lowering prices is actually better for profits. Big-box and internet retail have dramatically increased retail efficiency and that has almost completely eliminated door-to-door sales and decimated small ‘main street’ retailers. Some manufacturers like Dell have taken disintermediation even further and even eliminated the retailer. No double markup problem:

Manufacturer (Dell): $50 cost + $50 markup

Consumer: $100 cost paid

MLMs have done the opposite of disintermediation. Instead of cutting players out of the supply chain, MLMs add additional layers to the supply chain and each level adds a markup which drives up costs more than in any other kind of supply chain.

Manufacturer: $50 cost + $50 markup (100%)

Top of the pyramid: $100 cost + $20 markup (20%)

Platinum level: $120 cost + $30 markup (25%)

Gold level: $150 cost + $50 markup (30%)

Door-to-door retail level: $200 cost + $50 markup (25%)

Consumer: $250 cost (BUT nobody wants to pay expensive MLM prices)

This hypothetical supply chain shows a MLM with only four levels between the producer and ultimate consumer (considered reasonable under U.S. Postal lottery laws), but many MLMs have many, many more levels than that. For example, Amway officially lists 22 “levels of achievement” in their award system. Although each markup shown is not a large percentage, in reality only the <1% of the elites at the top of a MLM pyramid get a big markup and none of the other levels even break even because they buy so much inventory and supplies from their upline handlers and sell so little, but the dream is to make the sort of big markups shown above.

In addition to the extra costs of Many Levels of Markup, MLM distribution also has less efficiency than the logistics systems that competitors like Amazon and Walmart use for distributing goods across the nation. Because the MLM supply chain is so much less efficient than ordinary retailing, MLMs cannot compete directly with the big retailers, so MLMs are forced to invest in product differentiation efforts which further inflates costs.

As a result of their high costs, many MLMs mainly sell to their ‘sellers’ instead of selling to consumers. The only way to make a living in MLM is not to sell products to individual consumers, but to get other people to become sellers for you who will be required to buy a lot of inventory in their “starter package” so that they can dream of getting others to sell below them.

As a result of their high costs, MLMs struggle to sell to consumers, but that isn’t really the goal. The only way to make a living in MLM is not to sell products to individual consumers, but to get other people to become sellers for you who will be required to buy a lot of inventory in their “starter package” so that they can dream of getting others to sell below them. In the UK, 90% of Amway sellers did not sell a single item to anyone, but they all had to buy a starter package of inventory.

Everyone knows you cannot make a living wage selling products directly to consumers door-to-door anymore so the real dream in MLM is to get other sellers under you in the pyramid, and skim money from them. The underlings are also joining only in hopes of getting more people to join under them. But once you get some of your friends to sell the same thing you are selling, market saturation soon means that nobody can make money.

Whereas in the old single-layer direct sales model, each salesperson wanted nobody else to sell the same product to reduce competition because one more salesperson in a territory would saturate the market, but in the MLM model, each salesperson wants as many sellers as possible under them which rapidly saturates their market if they aren’t thinking about efficient scale. If each person wants at least 10 sellers in the level below them, then with three levels there are 100 sellers and with six levels there are a million. That is almost three times more workers than Target’s total American workforce. Amway is by far the biggest MLM and they do not report how many sellers they have, but the Chinese government reported that they had 1.5 million sellers in China alone. Walmart doesn’t reveal how many dealers they have, but they were estimated to have had 700,000 in North America alone. Just Amway’s sellers in China and North America combine to equal Walmart’s total of 2.2 million worldwide employees and Amway probably has millions more sellers worldwide because Amway also has sellers in over 100 additional countries. Walmart’s global revenues in 2019 were 61 times bigger than Amway’s, so Walmart’s revenues per seller are probably well over 100 times bigger than Amway’s. With Walmart generating more than 100 times more revenues per sales associate than Amway, it would be impossible for Amway to pay sellers as much as Walmart and even highly-efficient Walmart doesn’t have a reputation for high wages.

Inefficient scale and market saturation sets in quickly for MLMs. The math just doesn’t work for this business model to be profitable for the bulk of the people below the pinnacle of the pyramid. Since an MLM is a very inefficient supply chain technology, what explains why it has been a more successful business model than most other retailing systems in recent decades?

Ironically, the same information technology revolution that has enabled the disintermediation of global supply chains by electronically connecting each cash register in each store to manufacturers across the globe has also fueled the growth of MLMs over the past half century. Social networking technology has boosted MLMs by making it easier to leverage one’s social network than the old days when social networks were dependent on face-to-face communication and snail mail. So the same communication technology revolution that boosted Amazon and nearly eliminated door-to-door sales have also dramatically boosted MLMs because it is easier for individuals to network online and use social media to sell to their friends and family. In 1990, 75% of the companies in the Direct Sales Association used single-level (door-to-door) sales and only 25% was MLM. Twenty years later, in 2009, over 94% of firms in the Direct Sales Association were MLM (and only 6% single-level) and MLMs accounted for 99.6% of sellers.

Technology has made it nearly impossible to compete with mail order and Walmart doing door-to-door sales, so the direct sales industry has abandoned that methodology and moved to an even less efficient business model where the real goal is to recruit other sellers instead of selling products directly to consumers. Imagine if MLMs sold everything: all companies including Ford, Ikea, and Proctor and Gamble were MLMs. It would be a mess. Cars and furniture and Tide laundry detergent would be much more expensive. America would be an inefficient nation of shopkeepers all hustling to get others to sell for us.

The inefficiently high transactions cost of MLM sales means that they cannot compete with traditional retailers when selling products whose quality is easily compared.  That is why MLMs focus on selling placebo products.  These are products whose quality is highly subjective and prone to suggestion.  Dubious wellness products are a natural fit for pyramid schemes, but because of medical licensure regulations, only vitamins, supplements and ‘snake-oil’ devices like magnets are legally viable for pyramid schemes.  Beauty products, soaps and cleaning products, clothing, jewelry, travel packages, handicrafts, and status goods are also good products for MLMs as long as the quality is highly subjective and susceptible to suggestion and these are common in pyramid schemes.

Drugs like alcoholcaffeine, and medical marijuana are also highly prone to placebo suggestions.  so naturally there are pyramid schemes selling them despite the complicated difficulties of complying with numerous regulations on selling psychoactive drugs.

In an efficient supply chain, each level of the chain adds value. For example, a distributor manages the logistics of shipping and warehousing for a wide area more efficiently than any other company. A retailer adds value by adding essential service and support and the convenience for customers of having many complementary products located in the same place. In comparison, is there any value added by the many levels of a MLM?

For the elites at the top of the pyramid, the hierarchical organizational structure works great. The the 0.1% of people at the top who make money know that in reality, there are mainly just two levels, them and all their worker bees below who pay for the inventory up front, store the inventory in their homes, deliver the inventory to customers (if any), market the goods, and most importantly, provide the human resources management for recruiting and training new workers. All of this is done without the elites paying any wages. MLM companies don’t have to spend much money on advertising, recruiting employees, warehousing, and the expensive last mile of delivery because the 99% below the peak of the pyramid do it all for free.

Another way that some MLMs add value for the elites at the top (but not for end consumers) is that MLMs are good at getting their foot soldiers to make misleading claims about products. There is no practical way to hold the foot soldiers accountable for making fraudulent claims because each seller is doing very little business and making no money and it isn’t worth anyone’s time to prosecute them for making illegal exaggerations. For example, my father was snookered into selling expensive “healing” magnets and “medicinal” supplements and he really believed that these products were medical miracles. His faith in the products made him an ideal seller and he made illegal health claims about these products to friends and family, but nobody prosecutes individuals talking medical BS with their family and friends. In contrast, if the MLM’s management had been documented making the same kind of claims to the public, the FDA would shut down the entire company for practicing medicine without a license and making fraudulent health claims!

Gaby Del Valle found an example of a MLM company using its Multiple Levels to distance the wealthy leaders at the peak of the scheme from their debts and unsavory parts of their business in the lower levels to try to insulate themselves from legal liability. Similarly, companies like Uber have also fought expensive battles to prevent their drivers from being classified as employees because that would mean that the corporation would be legally responsible for their workers.

This is one of the functions of the bizarre organizational structure of pyramid schemes.  The leaders who are accumulating most of the wealth do it by form a hierarchy of multiple layers of “independent contractors.” But unlike a normal bureaucracy, very few of the workers in the organizational hierarchy are employees because almost the entire organization is made up of salespeople and none of the salespeople in massive bottom levels of the hierarchy are employees.  Therefore, the masterminds at the top cannot be held legally responsible when their minions earn less than minimum wage or go bankrupt or, perhaps most importantly, when they fabricate claims about their products’ miraculous qualities or use other unethical sales tactics.

Illegal drugs are also sold in a business model that is just like a MLM except with less branding and even more decentralization.  Like multi-level marketing, illegal drug gangs need to insulate the big-money managers at the top of the pyramid from the street dealers who are taking everyday risks selling the product to numerous buyers. 

As with more legitimate pyramid schemes, the arms-length distance between the gang leaders and each layer of “independent contractors” gets a cut of profits and marks up the drugs that finally make it to the street vendors. The extra layers reduce the cost-efficiency of the supply chain, but they dramatically reduce the risk for the drug kingpins at the top of the pyramid. 

MLMs have also found a market niche by appealing to some personality types who are happy to pay more for the social milieu of MLMs. I have had numerous relatives including my father who liked the social aspects and the optimistic dreams of MLM culture. Whereas nearly all Americans shop at the big retailers, most Americans never buy anything from MLMs and only a minority of Americans puts a large fraction of their household resources into in this kind of supply chain. According to the MLM industry lobby, only about 16% of American households are involved, and this may be overstating it because the industry has an incentive to exaggerate their reach.

The real benefit of MLMs for most sellers is not the money, but the social community for the 99% at the bottom of the pyramid. Their upline superiors don’t pay them any money, but they do give lots of social support and self-esteem-boosting praise and encouragement. An MLM is like a social club with conferences and parties where like-minded people can discuss their shared hobby and ideology. We don’t expect most people can make money from their clubs and hobbies, so we shouldn’t expect MLMs to be any different. Here a clip from a great podcast called The Dream showing the real benefits of an MLM in the words of women who don’t make any money, but love it nonetheless.

These happy MLM members gush about how their MLM has boosted their self-esteem and helped them develop a community and helped them pursue a dream. That was what my parents loved about MLMs. My mother lost money in her Discovery Toys business, but she loved throwing parties and she loved buying the toys for her grand kids. It also gave her an identity as a businesswoman. When people asked what she did, she said she was an entrepreneur which probably felt better than saying that she was an empty-nest housewife with a hobby that combined parties, toys and her grand kids.

My father also liked the social aspects of the MLMs he joined. He never really even tried to make any money. He sold everything to his friends at his cost or gave it away to family as gifts. He still ended up with a lot of inventory that he couldn’t sell even at his cost and I ended up selling it on Ebay at a loss after he died, or giving it away. But dad had no regrets and he liked the conventions and the dream of it all.

Some MLMs are much worse than others in terms of how much money they suck out of their average member and how healthy the social support is that they provide in return. At the worst end are the cults and true pyramid schemes. All MLMs say that they are absolutely NOT a pyramid scheme because pure pyramid schemes are illegal. This may be true, but only because the legal definition of a pyramid scheme is very narrow due to extensive political lobbying by wealthy MLMs. Legally, a pyramid scheme doesn’t sell any goods or services to end consumers and make all of their money from people who intend to earn money from selling. In practice, many MLMs are very close to this standard. As mentioned before, one study found that only 10% of Amway members in the UK sold at least a single product to anyone else.

The original pyramid schemes were just like Ponzi schemes except that the pyramid schemes were more honest in that it should be obvious to everyone that all profits are dependent upon bringing in more “investors”. A true Ponzi scheme works exactly the same way as a pure pyramid scheme except that a true Ponzi scheme has a manager who

  1. Lies to the “investors” about where the return on investment is coming from. The Ponzi scheme manager usually claims to be a high ROI mutual fund or hedge fund, but they really pay a high ROI to previous investors from some of the money coming in from new investors.
  2. Does not pay previous “investors” specifically for bringing in new “investors”. Investors just get a fixed ROI determined by the manager. In contrast, a pyramid scheme is more honest because each “investor” knows that she won’t get paid unless she brings in enough new “investors” under her.
  3. Skims off some hidden profit and money to pay for administrating the scheme. In some pyramid schemes, there is no administrator to pay because the cash from the bottom level is paid directly to the person at the top of the pyramid.

Examples of pure pyramid schemes are the Airplane Game, Eight Ball, Blessing Loom (popular during the Covid pandemic), and “Make Money Fast” which was a chain-letter pyramid scheme.

MLMs combine elements of both Ponzi and pyramid schemes as well as legitimate direct sales organizations (which is what all MLMs claim to be). For example, when the leaders of the Airplane Game realized that it was illegal to run a pyramid scheme that doesn’t involve selling any product, they decided to keep the pyramid scheme exactly the same, but give roses for the $1,500 required ‘investment’ so they could say that they were direct selling roses! Similarly, since only 10% of Amway sellers in the UK actually sell products to anyone, then 90% of that business is a pure pyramid scheme.

MLMs that use the party system invented by Tupperware seem to be farther away from the pure pyramid model and closer to direct sales because they claim to generate more money per seller. They also tend to have more of the benefits of social clubs since it is all about hosting parties! Other companies that have copied the party plan include Discovery Toys, Mary Kay, and Norwex. But there has been increasing temptation over the past half century to move away from the direct-selling model towards the pyramid-scheme model, so there is no guarantee that a direct-sales company will always be offering a legitimate business selling products.

For a more biting critique of MLMs, see Steven Hassan of the Freedom of Mind Resource Center who says that pyramid schemes have an an incentive to use same tactics to brainwash people that cults use. Some MLMs like NXIVM have actually become cults! Other resources include:

Posted in Managerial Micro

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