I realise that the text is intended rhetorically. The author does not think that the "weird alchemy" is real and is not expecting an explanation of it. But here goes!

Back in 2008 I noticed that many homes in America were purchased with a special kind of mortgage: a non-recourse mortgage. The borrower can just walk away. The lender sells the property to try to recover the money that the lender lent out; if there is a shortfall, the loss falls on the lender, not the borrower. You can understand it like this: a non-recourse mortgage is dearer than a recourse mortgage and the difference is best thought of as an insurance premium. The lender is selling a package. A cheap recourse mortgage + an insurance policy to cover the difference if the house is sold for less than the amount of the loan.

There is more to say, but I what to skip on to pose a curious question. What would a recourse-economy look like? What would a non-recourse-economy look like?

Imagine that a business man thinks that he knows what furniture will be fashionable in 2021. He buys wood. He spends money on wood working tools. He pays up front to rent a shop with a workshop at the back. He employs some craftsmen to build furniture to his design.

2021 comes around. He is looking forward to selling his chairs for $1000 each. Disaster! He as misread fashion trends and in 2022 he has to sell the chairs for $100 each. He loses a lot of money. Or does he? Can he get his money back from the lumber yard, the tool shop, the landlord and the workmen? Why not? They were all in it together, participating in a scheme in which the money (which most of them took in 2020) is supplied by selling chairs, for $1000 each, in 2021. When 2022 arrives, bringing the disappointment that the chairs will only sell for $100, every-one has to return 90% of the money that they prematurely took out of the scheme. Err, no. That might be how it works in a recourse-economy, but we live in a non-recourse-economy, which is very different.

In our non-recourse-economy, the craftsmen got paid good money, as though they were making thousand dollar chairs. They take the money and move on. When the chairs turn out to be hundred dollar chairs, every-one just shrugs. It never occurs to any-one that the craftsmen should repay their wages. It also never occurs to any-one that the sums don't add up. How is an economy like that supposed to work? Where did the money come from?

We are completely habituated to capitalism. Capitalists put up the money, the capital, and make a profit or take a loss. Those who take too many loses drop out of the capitalist class. We are left with a selected class of shrewd capitalists, who usually make a profit. But not always. In the non-recourse-economy the sums still have to add up, and when the future turns out badly and the goods don't sell, the capitalists lose their capital and the workers keep their wages.

That leaves two issues: control-fraud and return-averaging.

In a recourse-economy, the workmen might have to give back their wages, if the chairs don't sell. Naturally they will want a say in the design. But who is in charge in our non-recourse-economy? In a non-recourse economy, the workmen will vote for a design that is easy to make, and too uncomfortable to sell. They don't have to give back their wages, so they don't have to care. There are other stake holders; the landlord, the lumber merchant, etc. In a recourse-economy they would all have a say. In a non-recourse-economy, having their say would end up in control fraud. They would make decisions to funnel the capitalists cash to their chums. A democratic non-recourse economy would last ten or twenty years, until people got the hang of gaming the system. Then collapse, starvation, the gulag.

Where does the money come from to pay for the capitalists' losses? From their profits. If the system is to keep working there has to be a return on capital. The future is uncertain, uncertain enough that we can be certain that there will be losses. So the profits have to go to those who take the losses, or eventually the capital will all be gone and the system will fail.

Bill Haywood, gold miner and union leader, takes it for granted that he gets his wages, paid in cash, at the end of the week. It might take many months to dig the gold mine, and find out whether the gold ore is really there or not. Bill Haywood takes it for granted that if there is no gold at the bottom of the dig, it is not his problem. The wages have been spent and will not be repaid. By some weird alchemy, he gets paid for gold mining, even when there is no gold!

Think about that some more. By some weird alchemy, he gets paid for gold mining, even when there is no gold! Is this a genuinely free lunch? No. There is a catch, the other half of the weird alchemy. The people who do the work and who do not have to repay their wages when there is no gold, are disappointed to learn that, in the other case, when there is gold, the gold does not belong to them. When there is gold, it belongs to the people who fund the non-recourse economy, and whose losses make the sums add up.