Alchemy is one of the best examples in history of how man has attempted to devise a method to get something for nothing.

During the Middle Ages and Renaissance periods, many were obsessed with alchemy, particularly the theory that common metals could be turned into gold. This type of wishful thinking appears to have a permanent home in the hearts of humankind.

Yet the key to lasting financial prosperity is hard work, plus spending less than you earn over a long period of time. Unfortunately, the pursuit of "free" wealth by any other means continues in earnest to the present day. However, you can avoid the pitfall of this notion by learning a lesson from Iceland's attempt at financial alchemy.

Fish—not banks

Iceland's banks before their recent meltdown were far overextended with huge amounts of debt and risky investments—the alchemy of our time. A January 2010 segment of National Public Radio's All Things Considered told of Iceland's terrible predicament after the wholesale collapse of its banking industry.

Reporter Rob Gifford interviewed Stigodo Frenssen, owner of a small factory that dries fish and prepares it for export. Next to his factory sits the home of the owner of Iceland's largest bank.

Mr. Frenssen related that prior to the banking crash, his neighbor was "flying helicopters over my head here... Yesterday, he was buying land, farms, buying companies, flying around, having big parties."

A March 2010 follow-up segment on the Icelandic situation even mentioned "a story widely reported in Iceland that one of the bankers who brought Iceland to its knees ate flakes of pure gold sprinkled into a risotto."

For Mr. Frenssen the cause of the crisis is clear: "I think they forgot what was the basic foundation of the country. They forgot the foundation of their living, which is the fish…"

Speaking of financial theories prior to the banking bust, he lamented, "We were all going to get rich out of, I don't know, nothing. Iceland is fish, has always been."

Translation—if you want to make money, you have to do real work with a real product rather than making doubtful bets with borrowed money.

What now for Iceland?

The seriousness of Iceland's economic crisis should not be underestimated. With its failed banks explicitly or effectively nationalized, the Icelandic nation itself is in very real risk of defaulting on its obligations. Its creditors want to be paid. So do the British and Dutch governments, who compensated their own citizens for losses on deposits in Icelandic banks. The danger of further meltdown is clearly still present.

What should Iceland do to extract itself from this precarious position?

In Ephesians 4:28, the apostle Paul explained that the proper course for an individual who had obtained possessions through improper means was to "let him labor, working with his hands what is good, that he may have something to give him who has need."

Icelandic factory owner Stigodo Frenssen had it right. It's back to basics or bust. No more financial alchemy!

Your financial success

This principle is beautifully summed up by American founding father Benjamin Franklin. In a plan to improve his character, he resolved to "apply myself industriously to whatever business I take in hand, and not divert my mind from my business by any foolish project of growing suddenly rich; for industry and patience are the surest means of plenty" (The Wit and Wisdom of Benjamin Franklin, p. 4, emphasis added).

To personally avoid Iceland's alchemy idea, read "Avoiding Financial Black Holes." VT