Money and Magic

Timely: Money and Magic: A Critique of the Modern Economy in the Light of Goethe’s Faust. By Hans Christoph Binswanger. Chicago: University of Chicago Press, 1994. Reviewed by William Darity Jr., History of Political Economy 31:1 1999 (excerpt):

Money and Magic is the translation of Binswanger’s text, originally published in German in 1985. For Binswanger, Faust affords a vision of the modern economy as an alchemical process, a process that originally was intended to transform base metals into gold. But the relevant alchemy in Faust and the modern world is of a different sort. In fact, Binswanger contends that the retreat from “attempts to produce artificial gold” was not due primarily to “modern science[’s]” demonstration that “gold-making [is] an illusion”; instead, he says the endeavor to produce artificial gold was “abandoned ... because alchemy in another form has proved so successful that the arduous production of gold in the laboratory is no longer necessary.” Writes Binswanger,

It is not vital to alchemy’s aim, in the sense of increasing wealth, that lead be actually transmuted into gold. It will suffice if a substance of no value is transformed into one of value: paper, for example, into money. We can interpret the economic process as alchemy if it is possible to arrive at money without having earned it through corresponding effort: if the economy is a top hat, so to speak, which yields a previously nonexistent rabbit: in other words, if a genuine value creation is possible which is not bound by any limits and is therefore, in this sense, sorcery or magic.

The alchemical properties of money—paper money in particular—prove to doom Faust in his bet with the devil, a doom to which the devil could not tempt Faust with love. While Goethe unfolds the story of Faust, he also unfolds the story of economic life transformed by the power of finance—fictitious yet effective because of widely held belief in its power. For Goethe this power carries with it the seeds of destruction that, while “initially stimulating trade and commerce, will inevitably lead sooner or later to inflation, and so to devaluation and repudiation— refusal, that is, to accept the paper money.” Thus Goethe’s Faust anticipates the financial boom-and-bust cycles that mirror the story of the Emperor’s new clothes, admired by everyone until a small child says the Emperor is wearing nothing, which leads everyone to mock the Emperor. While Binswanger sees the parallels with Adam Smith’s discussion of paper money in his famous digression on silver, he does not draw the equally powerful connection with Keynes’s insights about casino capitalism in chapter 12 of The General Theory.