The Alchemist Guild
The Alchemist Guild opens in the Second Generation, after receiving the Forbidden Tome I. In this guild, you'll be able to "create" or "resurrect" past-generation party members (called "marionettes") who haven't carried over to subsequent generations. Marionettes are merely hollow beings, just shells of the original.
As an example, say you beat the First Generation with Leonhardt at Level 25. At the Alchemist Guild, you'll able to create him with the same base statistics he had at the end of the First Generation. Be warned, though; Leonhardt's statistics are raw, meaning that if he had held an item that boosted his INT up by 30, he won't have that gain anymore. But you can only create one of each marionette, which means you can only get one Leonhardt.
Nothing comes free, however. You'll have to pay a pretty penny for the creation! The amount of gold needed to create a marionette from a party member will be based on his/her level. The guild charges you in intervals of 5,000G per level. For example, if you had left Luana from the First Generation at Level 6, the price to create her as a marionette will be 30,000GP (30,000GP = 6 x 5,000GP). But you can treat marionettes the same way you've been treating the other characters. Which brings me to my next topic.
The Pros and Cons of having a Marionette in your Party
Having Leonhardt back into your ranks can be a good thing, but it could also be bad. The obvious plus for having a Marionette in the party is that you have another strong character from the previous generation fighting with you. Also, wouldn't it be cool to watch Leonhardt fighting alongside his son, Ladius?
However, a downside to a Marionette is that you may ignore the new characters who join the party over the course of your adventure. Having the same party members do all the fighting may be boring at times. Many gamers want to shake things up, instead of having the same things over and over again.
Because Marionettes can prove to be expensive, you'll probably want to spend much of your gold elsewhere. You can't sell your Marionette--it's a done deal. You'll never know if a newly-added character will prove more useful than your Marionette. Think wisely before buying a Marionette. It costs a lot of money!
My suggestion on Marionettes is to have one of them in your party. For example, Leonhardt is a balanced character and can prove to be a powerhouse when equipped right.
Saving Money on Marionette Creation
If you follow the directions for a True Path ending (and don't make any major mistakes), you will receive all previous heroes and heroines for free through story events. This will save lots of money for those high-level characters from later generations. However, the drawback is that these events happen so late in the game, you won't have much opportunity to use those characters unless you enjoy grinding levels in the Boundary Plane. So if you really like a character from the first 4 generations and plan on using that character a lot, it's still a good idea to create the marionette as soon as it becomes available. But bringing back party members just for the sake of bringing them back will cost a lot of G for no good reason!
Create Marionettes without Forbidden Tomes
It's been confirmed on Xbox 360 and I confirm (just tested it a second ago) it on PS3 too (EU version), you can create marionettes without the forbidden tomes in Agarest 1. I didn't try in the second generation, but at the very beginning of the third, before doing a single fight (You must be at TURN 0 on this generation), teleport to a previous continent to a random town, get into the Alchemist and you can resurrect your heroes from second generation as if you had the forbidden tome. Unfortunately it still costs the same amount of money. But it works real good. Also, it works on the fourth and fifth generations too, so maybe it works on the second too...