Kim Gentes

Personal finance books can sometimes sound about as exciting as an economic history textbook. But personal finance has a profound impact on the average person and family. Dave Ramsey is a radio show personality based in Nashville who has become successful as a speaker and author in the area of personal finance.

His first book, Financial Peace, has grown into a seminar, course and nationwide educational phenomenon having literally thousands of centers (mostly churches) that host the personal finance course called "Financial Peace University". The goal, as the title indicates, is to train people to gain peace in the area of finances.

In reading through this book, I started off with a fairly critical perspective. I am not the kind of person who likes listening to radio personalities that publicly berate callers on the topic of their “expertise”. I knew that Ramsey had a public persona of hard-nosed and I feared his book would be pompous and self-aggrandizing. I was wrong. “Financial Peace Revisited” is a pointed book, for sure, but it is tempered with the care of a person who has lived through real life. Some of the book relates Ramsey’s personal story of rags to riches to rags and back again- including growing a successful real estate business that crashed and burned, and his later recovery and learning process out of personal debt into long term financial “peace”. It is from this personal experience that Dave Ramsey tells not only his story, but the touch-stones of common sense that led him away from the common American family cycle of financial mismanagement.

In his book, Ramsey articulates compact truths that he calls “peace puppies” that are the foundational points of his thesis. One can’t say that the points are revelatory- but good advice rarely is. “Financial Peace” expounds the simple and clear truths of personal finance that many know, but few actually live. This is Ramsey’s main contention- we don’t live out the common sense items that would allow our money and careers to work for us. Instead, we allow the borrowing of money (normally to buy unneeded things) become the master and driver of our lives. It is this borrowing cycle that drives American personal finances into common and regular ruin.

Ramsey’s biggest and most salient point in this book is the belief that debt (all debt) is to be avoided and countered. There are plenty of other items, but they all serve to address this primary issue. But the brilliance of Ramsey’s approach is not just the common sense, but the emotional recovery of the debt-laden Americans who work Ramsey’s plan to come to financial peace. The biggest of the “smart moves” that fuel a “can-do” attitude in Ramsey’s followers is his recommendation that they pay the smallest bills first, and as those smaller bills get paid off the amounts used to pay those off get rolled cummulatively into the next largest bill. His “debt snowball” is genius, but almost counter-intuitive.

But it works. By paying off small bills first Ramsey knows that his customers will be feeling the emotional encouragement of seeing bills actually paid off. This heightens their awareness of the positive outcomes of their actions, giving them emotional fuel to continue paying off debt and working their recovery plan. In addition, the monetary power of those small debts being paid off cummulatively gets unleashed on larger and larger bills. Practically and mentally, the momentum is placed in the realm of those who follow his plan. In fact, he challenges people not to try to do too much too fast, for fear that this will only cause them to hit the emotional wall when the recovery from financial distress begins to drag on for many months and years.

There are literally dozens of great points in this book, and few errors. The only complaint I have with this book is its outdated, and somewhat unrealistic “positive” saving scenarios. In the book, Ramsey expounds that compound interest works powerfully against the consumers- and this is right. He says that if we save we can reverse this trend not only by not building up more debt (breaking the cycle of increasing debt) but we can use interest bearing savings options to let the money work for the consumer. But his oft-repeated examples are nowhere close to reality. The books cites, in a few examples, 8-12% return on compounding savings, which isn’t true in any consumer bank in America (and hasn't been in recent modern history). It isn’t true in money market funds and it is barely even true in mutual funds these days. There has never been an era lasting more than a year or two when most consumers could get a reasonable return on savings (especially when compared against inflation) without playing the stock market through mutual funds, but this is not how Ramsey says it. The point is, this detail could easily be updated and adjusted to reality to give the book more credibility- and it would be good if it were. To Ramsey's credit, he does get into details about how to invest later in the book, dealing with various investment vehicles that could give the reader the returns he talks about. Just a bit more differentiation between "savings" and investment I felt were needed for the scenarios presented in the first half of the book to make sense.

Beyond that, the book is very nice to read, quick to understand and support to those who actually want to “do it”!

One very nice feature is the regular end-of-chapter summaries by Sharon Ramsey (Dave’s wife) who takes a spousal perspective on how the main points of each chapter effected her life. This is a very nice contrast to the “go get it” approach of the author and gives the book some balance. Overall, this is a very good book, that contains not only great personal financial advice but seems to have proven itself worthy of the thousands of people who have taken Ramsey’s advice and gotten themselves out of financial struggles.

Amazon Link: http://amzn.to/17G2EiI

Review by Kim Gentes

In the last four years I have read many thousands of pages of materials in researching an understanding of economics, history and culture. In that time I have read little that was as well-written and insightful as David Graeber's "Debt: the First 5,000 Years".

What initially holds Graeber's work above others is his contrarianism related to the foundations of Adam Smith's capitalism, especially the historical telling of barter as the nascent form of exchange that led eventually to our current modern version of free market capitalism. The author makes the point that debt, rather than barter and money, was the foundational language and system of exchange and has remained so for 5,000 years.  The book claims that Smith's story related to the origins of markets, as found within "The Wealth of Nations", is a contrived fiction in which barter is used as the seed explanation for how currency/money/economy developed.

The grander plot of the book is that reciprocation can expose itself in two primary ways - owing a favor, or owing a debt. As he says poignantly-

the difference between owing someone a favor, and owing someone a debt, is that the amount of a debt can be precisely calculated.1

The book starts off with a modern day controversy about global (specifically, third world) debt. The question is raised about whether paying back debt is a moral question. From this launching point, the author traces back, through his anthropological background, five millennia of understanding human societies and how their systems of debt have become the framework for our understanding and conversations about virtually every aspect of life, especially (and including) morality. Graeber states-

If one looks at the history of debt, then, what one discovers first of all is profound moral confusion. Its most obvious manifestation is that most everywhere, one finds that the majority of human beings hold simultaneously that (1) paying back money one has borrowed is a simple matter of morality, and (2) anyone in the habit of lending money is evil.2

Part of the reason that morality and debt are so closely and importantly linked for the author is that he goes to great lengths to connect the idea that the moral failure surrounding debt is not with the debtor (as current culture suggests) but the with creditor. Graeber makes this important distinction not purely on the present circumstance (in which one person places themselves in debt to another as part of an exchange), but uses historical and anthropological examples (and theory) to expose the fact that for thousands of years debt has been enforced by the most heinous means- from debt peonage, slavery, prostitution, imprisonment, war, violence and more. At the root of the human ability to harm and debase one another over a debt is the fact that debts devalue not just the items exchange, but the very people themselves.

From this perspective, the crucial factor, and a topic that will be explored at length in these pages, is money’s capacity to turn morality into a matter of impersonal arithmetic—and by doing so, to justify things that would otherwise seem outrageous or obscene...3

...The way violence, or the threat of violence, turns human relations into mathematics will crop up again and again over the course of this book.4

The book develops a long and complicated understanding of various ages of exchange in which society went from credit based exchange to coin/currency exchange and back and forth for various reasons. Graeber's work is compelling if not confusing. While he is obviously a brilliant researcher and thinker, he languishes several times in the book to keep himself on task to his earlier promises. Many points that look to be big items drift off aimlessly into side issues and what seems like favorite quotes from the authors research work rather than essential points to the thesis. One of Graeber's important points about exchange/market systems is that they are integrated tightly with government constructs of debt and war.

modern money is based on government debt, and that governments borrow money in order to finance wars.5

All of this actually does matter in his final thinking, but he mars the straight lines of thought by randomly attacking capitalist thinkers like Milton Friedman and Adam Smith because he doesn't like that they said things built on utopian models (though he admits that what they said ended up being true and actually working in the real world).  Graeber is right in one sense- it matters why society thinks the way they do, and how ideas that changed history came into being. But while he is proving his points he meanders unsuccessfully through some issues by pretending that his ability to invert the predicate logic of a phrase (i.e. "what does society owe us?" into "What do we owe society") is appropriately addressing the real issue.  But in the end, his book is much better than the faults he makes in crafting his narrative- because he asks some great questions.

The biggest of these is about the nature of exchange and the nature of value. At the core failure of humanity in relationship to debt is a devaluing not of goods, but of the human person itself. Graeber is at his best when he challenges us to recognize that our history and our current practices have run rampant not because we use one economic system or another (capitalism or such), but because we allow the exchange system to carry us too far -- we allow it to exchange human life for goods. In essence, our systems of debt exchange place a value on human life as a way of equating what can be paid back when the currency is not. This happens in slavery, debt peonage, debtors prisons, and even wage labor.  It is ultimately a very compelling point, since he basis it on solid history and plenty of modern examples.

Some may decry this book as anti-capitalist, but I think Graeber is reaching for a higher ideal than that. I think he is looking for valuing human life right on forward to the present. That we provide protection for wage laborers, abolish debt peonage systems (that still exist in some countries today), even human slavery and worse.  He is also advocating the questioning of some systems that were built on these premise and have become unchallenged (such as new NGO loan systems, World Bank and the IMF), leaving whole nations in essentially debt servitude to multi-national corporations and countries such as the US.

Though he says these things, Graeber is not a raving anti-capitalist. His book is well worth reading. It sparks of brilliance in places and requires serious thought.  The corruption of the value of human life has been enmeshed into the exchange of the marketplace, and for Graeber this must be untangled if we are to make better decisions for the future. For this, he deserves huge praise and an honest reading of the material. 

Amazon Book Link: http://amzn.to/WZkw0w

Review by Kim Gentes

1. Graeber, David (2011-07-12). Debt: The First 5,000 Years (Kindle Location 8120). Random House Inc Clients. Kindle Edition. 

2. Ibid., Kindle Locations 202-204

3. Ibid., Kindle Locations 310-312

4. Ibid., Kindle Locations 320-321

5. Ibid., Kindle Locations 7694-7695