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

Of all the documents of economics found in modern (nay, any) times there is no more seminal text than Adam Smith's "The Wealth of Nations".1 In this particular treatise, Smith embarks not on the high-minded work of philosophical argument but in the arduous (sometimes monotonous) task of common sense exploration of the simple, daily, often obvious facts of commerce, production, wages, exchange, labor, value, government (and government corporations such as postal, banking, political and trade organizations), trade, currency, commodities, taxes, militaries, industries, nations, religion, education, inheritance (and inheritance tax), feudal laws, road maintenance (and other public works) and literally almost every conceivable article of economic interest. Because Smith deals with the details is such careful articulation, his larger premise(s) are rarely forcefully declared. Yet, they are become so obvious, they can scarcely be ignored by the observant reader.

With what now seems to be childlike attention to minutia, he articulates a basic course of Euclidian logic in the realm of economics (the axiom from Euclid's Elements that says "Things which are equal to the same thing are equal to one another"). Smith spins dozens of examples against each other to extrapolate nearly every one of his points to show how wages, land/rents and profits/stock have values that combine and compare to various expressions across the economic systems. And he does this kind of thing with nearly every one of his salient points.

Beyond this comparative rendering (that speaks often to Smith's assumptions about value - labor, prices, exchange, land and other items) the book effectively uses categorizing and linear explanation to break down every major principle of economy into its actually understandable (and usable) parts.

For example, on the topic of how a division of labor positively effects the production efficiency of any industry, Smith writes:

This great increase in the quantity of work, which, in consequence of the division of labour, the same number of people are capable of performing, is owing to three different circumstances; first, to the increase of dexterity in every particular workman; secondly, to the saving of the time which is commonly lost in passing from one species of work to another; and, lastly, to the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many.2

He is stating what we now all take for granted- efficiency in division of labor production can be derived from 1) Accentuated individual expertise in a specific skill, 2) no time lost in context switching between different tasks, and 3) automation. And while these things seem obvious, it wasn't to the world in which Smith lived. It was he who introduced these ideas to the broader intellectual and business leaders of his world.

The clear benefits of division of labor related to production here seem obvious to us, yet it is only so because Adam Smith pointed them out and that his work has become such a universally understood and accepted set of axioms of industry. And this is precisely what the entire volume of Smith's work does- point out easily deduced truths that have gone on to become universal business axioms. The power of this work is not in its elegance as much as its utility- for this book has so much detail that one could assume it was powerless, and nothing could be further from the truth.

Again, this can seem arduous at times, but the beauty of it is in its almost mesmerizing simplicity and reality. Taking into account that Smith wrote about 250 years ago, we must set aside his obvious assumptions based in a time period and culture which demanded such clarity be brought to what is now a much different world. The fact that so much of "The Wealth of Nations" seems so obvious to us is, in fact, a tribute to its practically universal impact on virtually every country, society and economy within 50 years of its writing right up until present times. Literally within a half century of its writing, almost the entire political and economic structures of European countries were revolutionized- and much of that revolution was guided in no small part by the contents of Smith's iconic tome.

Even though "The Wealth of Nations" would be the foundational document for later modern economics, Smith shouldn't be looked at as a revolutionary thinker of new ideas. In fact, it is doubtful Smith would have even considered his ideas new at all. The tone and contents of the book are all delivered as observations, summaries and assumptions based on what Smith was observing in business and trade. For example:

"the wealth of a country consists, not of its gold and silver only, but in its lands, houses, and consumable goods of all different kinds" 3

Here again, Smith is articulating what others would later call "essential", but he saw it as just one of many things that he was correcting that the merchantilists of his time had gotten wrong. Much as Aristotle didn't create biology, metaphysics, politics or zoology- though he did define them for all ages that followed- Smith is an observer and thinker that simply categorized what he saw. He, like his contemporaries, referred to this area of study as political economy but for all practical purposes Smith becomes, with this volume, the father of modern economics. He stands, therefore, as the first major figure to coalesce and categorize the realm of economics and all of its essential parts. It is from this foundational document that later thinkers would attribute everything from free markets, division of labor, money supply (though he never used that term) and laissez-faire to the Smithian vision of economics. For sure, corrections and adjustments to the model outlined by Smith were later made and built on by others. But reading this document will help you understand the scope and architecture of modern free market economics.

While my praise is genuine and in chorus with vast others, it must be, nonetheless, restrained by the ability we hold over Smith- our hindsight and look on history since him. Looking back on "The Wealth of Nations", one could easily become cynical and even critical of Smith's peculiarities on local and current issues. His great ability to critique (the strength that shines so brightly in his book) allows him to make excellent observations into his own nation (United Kingdom) and not withhold appropriate criticism to its corrupt or broken systems. Everything from the merchantilist system (which is, indeed, his chief target of angst for nearly 80% of the book) and it's benefactors, to the government trade monopolies, tariffs, taxation, regulation, and various inefficiencies- Smith takes them all to task as he sees any malignancy in any part. He tackles systems of education and religion as well. At times he is ruthless, but he leaves no aspect of society untouched, including speaking on slavery, educating all ranks of people, need for taxes for public works, standing armies (the need for national security) and dozens of topics. Each of them he relates to their particular connection in economic life.

Because he lives in a time period with obvious prejudices towards classes of people, and nationalities as well, he allows some of that culture to speak out in his writing. This must all be heard and mitigate any grand estimations we might have of Smith as a social reformer in our scope of understanding. He WAS INDEED a huge reformer, and his economic understanding of how free markets can allow nations to raise the standard of living for ALL it's citizens is remarkably prophetic and proven right -- indeed western civilization and its undeniable ability to feed its populations and take care of necessities (and that has been so for almost 150 years since Smith's principles have been assimilated in taken up by every major western society since it's writing) shows the vitality to Smith's claims. However, the depth of social understanding in areas of racial, gender, nationalistic and social standing are not the concerns that Smith could comprehend, and as such we can't become revisionists and acclaim him for anticipating that his economic equality formulae would be one of the most powerful forces that would eventually help give equality to these broken divisions. Smith did not anticipate it, but his truths were still nonetheless effective in assisting and encouraging changes and economic freedom for these divisions just as well as every person was encouraged in the same way through the same terms.

This book is huge- literally. Depending on the version you read, the original volume was published as five  separate books in a collection.  Unabridged versions include all five sections adding up to a massive 640 (plus) pages. Many modern collections of this book feature just the first three sections (books), since the minutia of the last two can be so arduous. No doubt economics students will want to consume the entire tome, but be ready for a few hours of "easy-to-drift-off" details if you venture to tackle this entire collection.

Overall the book was absolutely astounding in keeping the account of such huge proportions still a vital and engaging narrative. I can't recommend it enough- if you have a spare 30 hours, this is your best bet for a truly great read!

Amazon Book Link: http://amzn.to/10DTrTg

Review by Kim Gentes

1. The formal full name of the book as Adam Smith published it first was "An Inquiry into the Nature and Causes of the Wealth of Nations". It commonly became known simply as "The Wealth of Nations".
2. Smith, Adam (2011-04-29). The Wealth of Nations (Illustrated) (p. 3).  Kindle Edition.
3. Ibid. pp. 308-309

Tracing the history of financial development seemed like a good idea at the time. But what I found most often (in books I perused before buying) was that most books focused on economics, whose cogent thinkers don't arrive on the scene until the 18th century. Then I found "The Ascent of Money", whose apt title keeps a sharp focus on the instruments of exchange rather than the philospohies of theories, political bents of champions, or minute formulae of econometrics.

"The Ascent of Money" begins with ancient times in Mesopotamia and accounts for us the tale of first ledger accounts that were made with clay markers- the first instance of bonafide money. Since those first signs of tokens of exchange, humans have invented ways of marking wealth with various devices. Without spending time on economy, Ferguson accelerates through history, reaching mideavil Europe in fairly short order.

His goal is clear- trace the uses and demands of how people, leaders and governments invented mechanisms for exchange, funded expansion, waged wars, invented industries and toppled kingdoms. All with the tool of money.  He explains the details of how various forms of exchange, from metals to paper to digital balances made their way into society.

The book is exceptional writing, with dizzying amounts of information, but all kept sharply in focus of the topic. Even as he explains M1, M2, M3, securities-backed derivatives or the failure of LTCM and more, the reader never feels left in the dark by a harried professor trying to overwhelm you with all their brilliant knowledge. Ferguson is obviously a brilliant scholar, but he doesn't lean on details to impress the student, he weaves a thoughtful narrative that calls out the minutia in appropriate amounts and at the appropriate times.  After reading several other books on the history of economics, it was wonderful to read a book that dealt with monetary development without being theory driven or school biased.

If you love history, you will love this book. I learned an exceptional amount about money in all its forms and enjoyed the writing the entire way through. An excellent book. I highly recommend it!

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

Review by Kim Gentes