There is, of course, a third return which does equate to rent. This is the opportunity that the multinational company has to reduce its overall cost of capital by offering a composite risk to the investor rather than the specific risk that an individually focused activity can provide. The result is that the multinational company can fund its activities at a lower cost than individual entities can, providing it with another return that approximates to yield that is not so much earned as it is the consequence of exploitation, giving it the form of rent, yet again.

Lower financing costs as a result of lower risk through diversification is a rent now, is it?


The parent company of the multinational group is, as such, an exercise in financial engineering that, like all such exercises, seeks to make its return by exploitation of artificial factors of production that are themselves inherently unproductive in the sense that they do not add to the overall net worth of human well-being. By definition, as a consequence, they extract reward, rather than add value.

Lowering risk through diversification is not adding value?

But, but, why are people willing to invest for a lower return if that lowering of risk is not adding value?

This is also why multinational companies are so dedicated to re-engineering their businesses to create debt as a consequence of their trading wherever it is possible. So, telephone companies wish to sell phones on contracts that disguise implicit high rates of interest. And retailers seek to provide credit cards whilst care manufacturers make most of their money from extending credit to their customers, and not by making the car. That’s because the excess rates of return on capital that the implicit interest rates in these transactions implies provides the rent that multinational companies are now seeking rather than from making the product itself.

Low margins on making cars having nothing to do with making cars being a competitive marketplace?

23 thoughts on “What?”

  1. I just love “to create debt as a consequence of their trading wherever it is possible.”
    The way to do that is to trade at a loss (or not to bother collecting money from their debtors).
    Shouldn’t this come under the title of the previous post?

  2. The terifying thing is people buy into this sort of nonsense. Murphy’s tactic seems to be “small fact first, bullshit follows”


    – Some Swiss bank accounts are used by tax evaders
    – There are probably tens of thousands of Swiss bank accounts we know nothing about.
    – If we assume each bank account is used to evade just £10,000 tax that would be £100,000,000 in tax
    – In the primordial past, thetans brought the material universe into being largely for their own pleasure. The universe has no independent reality, but derives its apparent reality from the fact that most thetans agree it exists. Thetans fell from grace when they began to identify with their creation, rather than their original state of spiritual purity. Eventually they lost their memory of their true nature, along with the associated spiritual and creative powers. As a result, thetans came to think of themselves as nothing but embodied beings.

  3. Tim

    I assumed I was reading some screed from a Zanu PF manifesto. The fact that this man can be considered an ‘expert’ by anyone tells us much about the corruption of the contemporary intellectual scene. Have to echo the comments of ‘Luis Enrique’ – he really doesn’t understand what a ‘rent’ is in the conventional economic sense. Shocking stuff – indeed the article as a whole might merit the treatment you gave Ha Joon chang…..

  4. God, he is a bloody awful writer. Even ignoring his misunderstanding of economics, he is incapable of putting any point across clearly. It takes several readings to figure out what he is trying to say. Perhaps a good editor would expose the paucity of his thinking.

    I wonder if this is why he gets support? People don’t understand what he is saying so assume that he is smarter than them?

  5. GlenDorran

    Sorry that you haven’t assigned him the normal description. I agree with your analysis of his entry. Tortuous and torturous, I think I grasped it at about the third attempt, but only because some previous posts alluded to it.

    In fairness, when you look at some of the people posting on the threads (Mark Crown, TheremustbanotherWay and so on) the chances are he may be more intelligent than them. As has often been said, a moron’s vote is worth the same as yours….

  6. Also, of course, he tells people want they want to hear so the justification doesn’t need to make any sense.

    75 billion years ago galactic leader Xenu brought billions of souls to earth and they infest our bodiies. capitalism is bad, capitalism is doomed, rich people should be taxed more.

  7. This is probably way off topic – but if he was serious, about transfer pricing / shifting profits etc, wouldn’t it just be a whole lot simpler to advocate for re-introducing witholding taxes (for all sorts of transfers)? And yes I know it’s against EU law and all that. It would deal with a bucket load of his favourite offshore avoidance issues?

  8. GlenDorran, either it is your lack of comprehension skills or he LHTD’S lack of presentation skills. I’m going with the latter.

  9. seeks to make its return by exploitation of artificial factors of production that are themselves inherently unproductive in the sense that they do not add to the overall net worth of human well-being. By definition, as a consequence, they extract reward, rather than add value.

    Sort of like an accountant, then?

  10. So diversification to spread risk is a form of rent?

    A fish shop that begins to sell chips as well is receiving a form of rent?

    And people actually listen to him?

  11. AndyC

    According to a relative who is a good friend of Murphy he is spoke of ‘in hushed tones’ (by whom I am never told) and at least pace this ideological soulmate, he has ‘reached a new peak of excellence’ – whereas most normal people think he needs sectioning, for the Extreme Left/Greens, his ‘complex thinking’ is proof of his intelligence.

  12. Pellinor I can’t tell if you are being serious or mocking him for using the word as shorthand for what he thinks is deserved, or not.

  13. Luis – I’m describing how I see him use the word.

    I try not to mock Murphy, just to say it as I see it. I think some of what he says ends up looking a bit ridiculous, but then I’m sure that could be said about me too 🙂

  14. Pellinor,

    ah I see. I meant he doesn’t know what the word means in the economics jargon sense (it’s not about what is deserved or not).

  15. Pellinor

    Please do not say “pot, kettle, black”, but I do think it’s time you stopped helping him. Without the arguments of the outraged (or just people who know more than him) he would be left with big red zeros in the top right of every post. His claim to pre- eminence, risible though it is, is based upon the response he gets. His own followers only wade in once there is a “debate ” with the neoliberals. There are other, better fora, let’s use them instead.

  16. @GlenDorran

    An accountant who becomes an expert in economics and the law is a rent seeker?

    By the definition given, an accountant would be such (I stress, this is not my definition but the one quoted).

    There may be accountants who have become expert in economics and the law, but I can’t think of any, and it is hardly pertinent to this discussion.

  17. Ironman

    I’m with you – the denied oxygen of publicity (if withheld) will soon lead him to revise his comments policy. I wouldn’t give him any traction beyond the exposure he gets here, and have purposefully not commented on any posts in about 8 months. Let TRUK become the echo chamber he wants it to be.

  18. OK, we all agree that Murphy is an idiot. Had it not been for this blog, I would never have heard of him. But a query.

    “Lower financing costs as a result of lower risk through diversification is a rent now, is it?”

    Do you actually get lower finance costs through diversification? My biggest financial investment is an index fund with over 2800 companies. Do individual companies really get cheaper capital by diversifying when it’s so easy for an investor to diversify?

  19. Luke,
    The idea of firms lowering financing costs (WACC) through diversification was the core thinking behind the rise of the conglomerate businesses of the 1960s and 1970s (e.g. ITT, etc).
    The conglomerates were broken up in the 1980’s and 1990’s for a reason; while in theory diversification does reduce WACC through a lower beta (which is what RM is alluding to), investors came to realise that 1. They don’t need the firm to do that cos they can diversify themselves anyway through their own portfolio (so in effect the promised upside was nil for the investor) and 2. It turned out Conglomerates came with a ton of dis-economies of scale.
    So it’s a plausible and tempting theory, but it practice it just doesn’t really deliver on the promise.

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