The last resort (Kindleberger, 1973). It is striking

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Last updated: October 1, 2019

 The mostobvious parallel between the 1930s and today’s international political economyconcerns financial crises- the Great Depression of the 1930s and the GreatRecession of 2007-2008. Extensive analysis of the Great Depression hasattributed its severity to various causes, including- but not limited to- themonetary union of the Gold Standard (Frieden, 2015: 136) and lack of a hegemon toprovide stability and most importantly act as a lender of last resort (Kindleberger,1973). It is striking that numerous scholars are returning to this time periodin particular following the Great Recession that started in 2007, highlighting missed AK1 opportunities forlessons on financial crises. Like in the Great Depression, the Global FinancialCrisis began in the United States and spread to Europe by 2008 and exposed thevulnerabilities of the Eurozone, the monetary union of 19 European Union memberstates. While initially a banking crisis, two further crises have emerged inthe Eurozone- a debt crisis, and a growth crisis (Shambaugh, 2012: 157).

 The Eurozone is a particularly ambitiousmonetary project, and the difficulties to recover from the recent financialcrisis questions the limitsAK2  of the Europeanproject as it has appeared to be in a perpetual crisis since. Worryingly, this isreminiscent of another monetary union- the gold standard- that is “often blamedfor the most spectacular economic catastrophe of modern times: The GreatDepression of the 1930s” (Frieden, 2015: 136). Crisis management, too, has beensimilar. Monetarist policies have triumphed ideologically over fiscal policies,and the accompanying austerity of the Gold Standard era is seen in the Eurozonetoday. Given the failure of the gold standard’s revival, this ultimately leadsto the question of how the gold standard has manifested itself in significantways in the Eurozone.

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This essay will attempt to answer this by concentratingon the dominant economic ideology in Europe in the 1930s that has shaped themonetary union of Europe today- German ordo-liberalism and neoclassical liberalismAK3 , which can beviewed as an ideological hegemon in the Eurozone (Gill, 1998, Bulmer, 2014).The focus on economic ideology in governing policy-making and being responsiblefor zombie theories such as austerity enables this historical comparisonbetween the 1930s and today’s international economy to go beyond merely theirparallels, and discuss the role of the 1930s in restructuring the economicideology of the Eurozone today, and the reason flawed policies are adopted.Thus, this essay argues that the analytical utility of the historicalcomparative approach with regard to the 1930s is the demonstration of thedevelopment of predominant ordo-liberal and neoclassical ideas that lead topolicy-making that does not concur with the economic and political realities ofmonetary unions and their member states, failing to promote economic growth andpolitical stability and threatening the union’s lifespan. It is important to notethat by ascribing flawed policies to restrictive economic ideology, this essaydoes not seek to discredit economic models in general, as in fact, manynon-monetarist economists were against the creation of the European monetaryunion (Gill, 1998: 15), and there is wide acceptance for the failure of thegold standard and little support for its revival.

The European monetary unionis more so viewed as a political project, and the creation of the Euro was, bykey players, viewed as a logical step towards a stronger, more peaceful Europe,in the aftermath of a two world wars dominating the first half of the 20thcentury (Stiglitz, 2016: 6). This approach seeks to emphasize the predominance offundamentally flawed economic ideology. In Europe in the 1930s this was the “ordo-liberal project, centeringon a diasporic network of German intellectuals and pivoting on the “Germanquestion” that was the dominant manifestation of neoliberal thinkingbetween two world wars” (Peck, 2010: 17).  Given that German economic thinking has playeda significant role in the development of the European monetary union (Bulmer, 2012),returning to ordo-liberalism in the 1930s, which has continued influenceGermany’s ideological hegemony in the Eurozone can provide furtherunderstanding of the dominating ideology in the Eurozone and explain the reasoningbehind its policies. TheEurozone has failed to meet even the anemic growth of the United States sincethe crisis hit, because of the limitations on its crisis management imposed byits monetary union, which does not even take into account unemployment like theFederal Reserve in the United States. The Eurozonecrisis goes far beyond the challenges of its adjustment mechanisms and a debtcrisis. The ideological roots imprinted in the Maastricht Treaty grew out ofthe restructuring of capitalism that dates back to the 19th-centuryclassical liberalism.

By looking at the development of neoliberalism, theunderlying causes become apparent.  Developmentof Neoliberalism  Neoliberalism is associatedas a dominant ideology within the Eurozone by scholars such as Joseph Stiglitz.The problem with this, however, is that neoliberalism can be an analyticallyvague term. Indeed, Jamie Peck (2010), emphasizes how neoliberalism has takenmany forms since classical liberalism in the 19th century and hasdeveloped through a transatlantic dialogue with various developments ofneoliberalization. Peck’s (2010: 4) identification that “neoliberalism was always concerned—at itsphilosophical, political, and practical core—with the challenge of firstseizing and then retasking the state” helps explain its continuous conflict andwhy it continues to restructure itself, as it is constant conflict with theextent of the role of the state in the economy.

Given its ambiguity, Peck(2010: 8) takes a historical view to understanding neoliberalism, remarkingthat “perhaps the closest one can get to understanding the nature ofneoliberalism is to follow its movements, and to triangulate between itsideological, ideational, and institutional currents, between philosophy,politics and practice”.  Ifneoliberalism is understood to be at the heart of the international politicaleconomy since the 1970s, then it is critical to return to past movements suchas neoliberalism in the 1930s. In Europe in the1930s then, Peck identifies ordo-liberalism as part of the transatlanticdialogue, and various scholars continue to attribute ordo-liberalism aspersisting as German economic ideology today (Blyth, 2013; Bulmer, 2012;Brunnermeier, James, and Landau 2016). Ordo-liberalism developedin the Freiburg schoolof economicsAK4  in the 1930s, acknowledgingthe limits of the laissez-faire movement during the 19th-century,but also reacting against both monetary and fiscal Nazi interventionism in the market.Following these influences, ordo-liberalism confines the role of the state to amere “regulator of the economy” (Bulmer, 2014: 1246) that is based on arule-based order. As part of its principles, the state was restricted inoffering “the guidance of economic process” (Blythe, 2013: 136),displaying anti-Keynesian sentiment. Additionally, ordo-liberalism viewsKeynesian policies as “inherently inflationary” (Blythe, 2013: 140) Central toordo-liberalism was a politically independent central bank, and even during theKeynesian era after World War Two until the 1970s when almost all central bankswere dependent, the Bundesbank in Germany was independent (Blythe, 2013: 157).

Similarly,today, the European Central Bank is highly independent with the same goal ofprice stability (147), a restrictive mandate attributed to its continuingfailure (Stiglitz, 2015: 147).Despite its shortcomings, neoliberalist ideasincluding ordo-liberalism have triumphed over more Keynesian policies between1945 and 1970, and a very brief return to

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