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Herman Daly, "Alchemical Economics"

"Alchemical Economics"
Herman Daly

A review of H C Binswanger's Money and Magic: A Critique of the Modern
Economy in Light of Goethe's Faust
(University of Chicago Press, 1994)

H C Binswanger is founder and director of the Institute for Economics and
Ecology at the University of Saint Gallen, Switzerland. Long an important
figure in the German-speaking world, his work has been too little known
among English readers. That alone makes this little volume very welcome.
The importance of his theme, and the scholarship and insight with which he
develops it, merits the widest possible readership.

The theme of the book is that mainstream economics is alchemy carried on
by other more effective means. Perhaps ecological economists should stop
using the term "mainstream economics" and substitute "alchemical
economics" as a more descriptive name for that which we are trying to
reform. This is by no means a mere rhetorical flourish. It is historically
and logically well founded. The prince of Orleans, like other royalty,
employed court alchemists in the hope that they would produce gold, with
which he could pay off his debts. But when the prince attracted Scottish
financier John Law to his court, he promptly dismissed his alchemists
because the paper money scheme introduced by Law was a more effective way
to redeem his debts. The goal of alchemy, to turn worthless material into
gold, remained unchanged. The worthless material of paper just proved more
receptive to transmutation than lead had been. The transmutation of paper
into money remains fundamentally a "chymical wedding" of mercurial, liquid
imagination (imagining it to represent unmined gold still in the ground)
and fiery, sulfurous impression (the impressive authority of the emperor's
signature on the note). But this is getting ahead of the story and into
"technical" alchemy.

Binswanger's source and vehicle for developing this idea is Goethe's
Faust, which he shows is a thoroughly alchemical play, a critique of
alchemy's "Faustian" attempt to overcome transitoriness (to find the
liquid gold elixir of life). That attempt to conquer time is carried out
in different ways in the modern world by science, art, and the economy.
The play offers a dramatic representation and critique of each of the
three paths. Science seeks to overcome transitoriness by finding natural
laws or eternal norms. It looks for eternal norms of causality, and since
cause always precedes effect it is driven in the direction of the past,
seeking cause behind cause. Art seeks to overcome transitoriness in
focusing on the present moment, disconnected from the past chain of
causation, but not yet dominated by the demands and lures of future
purposes. The economy seeks to overcome transitoriness by embracing the
future and giving the present over to purposeful action demanded by the
future. The economy dismisses art, and reduces science to a handmaiden of
utilitarian future purposes. The economy seeks to master time by:

... transforming goods into money values that survive the passage of time
and by advancing to these money values through the "gateway of the
future". Money is by its nature an order for the future) for what one can
buy in the future by spending it, or gain in the future, as yield or
interest, by investing it. One can therefore virtually say "money is
future". But since the economy is geared to money values, the future is
lost again because the money value can only be secured through constant
additional consumption of the world, for this money must be covered by
real goods excavated from the mine of the world. The future is then
threatened to the extent that the world is limited, that is, the world
mine is exhausted.

Goethe does not tell us where the limits lie, and clearly believes that
they can be pushed back, precisely through gearing the economy to money
value - to emphasizing timeless abstract exchange value of money and
downplaying the more traditional concrete use value of real goods. This is
because the latter are necessarily limited by the satisfaction of the use
they serve, and subject to loss and decay, while money is both unlimited
and permanent. As Binswanger puts it: "By reducing the world to the
quintessence of money, the world becomes augmentable. It grows with
economic growth!" The word "quintessence", we learned earlier in the book,
is itself alchemical, meaning literally the "fifth essence", the deep
essence in addition to the four obvious essences of earth, air, fire, and
water. The fifth essence is that which is common to the four essences and
allows for their transmutation, and was commonly referred to as "the
philosopher's stone". Thus money equals the quintessence, equals the
philosopher's stone, equals that which transmutes the worthless into the
valuable, the perishable into the permanent.

Although Goethe does not tell us where the limit is, he does tell us that
mankind is no longer capable of recognizing such a limit, even when he
hits it. Like Faust, modern man has become blind to the problem of limits
- and therefore easy prey to the economic alchemists who promise
indefinite growth by turning base metals into gold, transitoriness into
permanence, and swamps into farmland. The last, of course, was Faust's own
economic development project, complete with the "involuntary resettlement"
of Philemon and Baucis, the traditional, independent, contented old couple
who, like many indigenous peoples today, were unfortunately in the way of
the alchemists' experiment.

The focus of the book is on the economy as modern alchemy, not on science
and art, whose relation to alchemy we only learn about in Part Two. Part
One, the first half of the book, is dedicated to the economy as alchemy
continued by other means. I began with the larger context that indicts
science and art for alchemy, as well as economics, in order that our
ecologist colleagues should not feel too smug. Binswanger emphasizes
economics because in the modern world it totally dominates both art and

In reading the book, I was reminded of a statement by C S Lewis:

If we compare the chief trumpeter of the new era (Bacon) with Marlowe's
Faustus, the similarity is striking. You will read in some critics that
Faustus has a thirst for knowledge. In reality he hardly mentions it. It
is not the truth he wants from his devils, but gold and guns and girls.
"All things that move between the quiet poles shall be at his command",
and "a sound magician is a mighty god". The true object is to extend Man's
powers to the performance of all things possible. He rejects magic because
it does not work, but his goal is that of the magician. (The Abolition of
Man, 1943)

The modern economist, like the prince of Orleans, rejects alchemy because
it does not work, but his goal is that of the alchemist. His goal may fall
just short of being the Creator, since the alchemist is not making
something out of nothing. But he does aspire at least to the role of
Senior Demiurge, entrusted by the Creator to make something worthless into
something valuable, to improve or continue creation in a fundamental and
unlimited way. Alchemy is not disciplined by the first and second laws of
thermodynamics - another common feature with modern economics - and the
basic reason why neither of them works very well. However, economics seems
to work better than alchemy for a while. But as John Law's subsequent
experience shows (he barely escaped with his life from people swindled by
his paper money schemes), the long run superiority of economics over
alchemy remains in question. This is because the goals remain those of the
magician, not the scientist. As a consequence Binswanger tells us:

This act of creation by the economy exerts a huge fascination, the
fascination of the infinitely augmentable, that is, of eternal progress.
The economy thus gains the transcendental character (that is, surpassing
all limits) which man formerly sought in religion. It is not belief in a
hereafter, but economic activity in the here and now, that opens up modern
man's perspective on eternity.

Faust certainly represents modern man in this regard. He is unable to see
limits, to understand that in a finite world pluses cause minuses and
deeds are accompanied by misdeeds. He is hell bent to reach for heaven on

In this short review I have not done justice to Binswanger's convincing
literary exegesis of Faust, nor to his scholarly historical explanations
of alchemy, nor to his discussion of the relations of Goethe's ideas to
those of Adam Smith, Saint- Simon, Simonde de Sismondi, and others. I have
only tried to convey the basic thrust. There is much more. The book is
superb. It deserves a prize.


Herman Daly, a luminary of the ecological economics movement, is the
co-author of For the Common Good (Beacon Press) and an associate editor of The Journal of the International Society for Ecological Economics, from which this review was reprinted.