1920s Klan Was Actually a Big Pyramid Scheme
Group leaders made money off own members selling robes, imposing fees
By Luke Roney,  Newser Staff
Posted Dec 26, 2015 2:47 PM CST
   (AP Photo/The Clarion-Ledger, Ryan Moore)
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(Newser) – Even during its 1920s heyday, the Ku Klux Klan wasn't a very effective hate group, according to an analysis by Harvard economist Roland G. Fryer and Steven D. Levitt, the latter of Freakonomics fame. However, the Klan was a "wildly successful" pyramid scheme, according to a Priceonomics blog post that rehashes the pair's 2011 study of the group. In the piece, Rosie Cima writes that KKK leaders "exploited pre-existing, popular racism to make money." For example, during a time when most in the US made less than $700 annually, the KKK leader in Indiana made some $200,000. He and other leaders managed it through clever marketing and the invention of all kinds of ways to make money off their own members—a classic trait of a pyramid scheme. For instance, the Klan charged members a $10 initiation fee, and Fryer and Levitt provide the breakdown:

  • $4 to the salesman (called a "Kleagle") who recruited a member
  • $2.50 to the PR firm the Klan had hired to boost membership (it boomed)
  • $2 to the Klan's self-declared "grand wizard," William Simmons
  • $1.50 to a regional supervisor (the "Grand Goblin").
The result, Cima notes, "looked much like a modern multi-level marketing company—with extremely stupid titles." And it didn't stop with initiation fees: the Klan leaned on members to buy robes (and robe cleaning), along with Klan-branded life insurance, accessories, bibles, and even candy. The Klan petered out as a genuine national force in the 1940s (the feds got them for back taxes). But small KKK groups are still out there, and, according to Vice, some are using candy as a recruiting tool rather than as a moneymaker. Residents of Cullman City, Arkansas, recently received KKK fliers packaged with Tootsie Rolls and lollipops. Authorities there are investigating the not-so-original scheme. (In November, Anonymous exposed hundreds of suspected KKK members.)
 

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