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March 3, 2007

Review: The Richest Man in Babylon

by Dan

A few years ago, I picked up The Richest Man in Babylon by George S. Clason because I was interested in learning about money. It’s an amazing subject really, and I wanted to know more about it. The book more than fulfilled my hopes.

Written in 1926, the book is a collection of stories set in ancient Babylon, chosen because many of the financial principles still in use today originated there. The book opens with the story of Bansir and his friend Kobbi. Both have worked hard for many years and yet seem to have nothing to show for it. As they discuss how they would like to possess some of the riches they see around them, Kobbi asks what I consider to be a question so obvious I was surprised it had never occurred to me, “Might we not find out how others acquire gold and do as they do?”

They decide to visit their old friend Arkad, who began life much the same as they, but has amassed such a fortune as to be considered the one of the richest people in Babylon. Arkad welcomes them and is glad to hear their request. When they ask why he is rich when they are not, he replies, “You have either failed to learn the laws that govern the building of wealth, or else you do not observe them.” The rest of the story contains Arkad’s advice about the basic principles of financial prosperity.

  1. Start thy purse to fattening
  2. Control thy expenditures
  3. Make thy gold multiply
  4. Guard thy treasure from loss
  5. Make of thy dwelling a profitable investment
  6. Insure a future income
  7. Increase thy ability to earn

As far as I can tell, George Clason is the originator of the idea of paying yourself first, the first principle in the above list, which had never really made sense to me. However, I realized that most of what I earn, and I suspect this is true of nearly everyone, is spent on stuff. Housing, clothing, food, utilities, entertainment, taxes, children, travel. The list is endless. Arkad puts it better than I: “A part of all you earn is yours to keep.” He suggests that it should be no less than 10% of our incomes. Yes, saving 10% of my income every month definitely started my purse to fattening.

The story continues with further details and examples, as told by Arkad, of the other principles of financial prosperity. There are more stories covering luck, opportunity, debt, investing, lending, insurance and work. Having just re-read the book, I am still amazed by how useful, and profitable, old Arkad’s advice has been.

One of the other eye-opening passages from the book is about the creation of wealth. I must have re-read it four or five times in a row:

Wealth grows wherever men exert energy. If a rich man builds him a new palace, is the gold he pays out gone? No, the brickmaker has part of it and the laborer has part of it, and the artist has part of it. And everyone who labors on the house has part of it. Yet when the palace is completed is it not worth all it cost? And is ground upon which it stands not worth more because it is there? Wealth grows in magic ways. No man can prophesy the limit of it.

So why read a book about the basic principles of financial success? As Mr. Clason says in the forward to the book, “Our prosperity as a nation depends on the personal financial prosperity of each of us an individuals.” In addition, I like the idea of having enough for myself and to spare. Enough to enjoy the good things in life without worrying about running out of money. Enough to give some away too.

I’ve read over 15 books on finance and investing and The Richest Man in Babylon is one of two that I recommend reading as a foundation for financial success.

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