Economic Theories of Social Order and the Origins of the Euro

Abstract

This paper explores how the Euro project became a reality as a result of conflicting political and economic forces. The idea was born in the interwar period in France, among a circle of Traditionalist elites and conservative intellectuals, politicians, and businessmen. They dreamed of restoring an allegedly genuine social order that would guarantee social stability and the rule of reason against what they considered to be the abomination of the American lawless society. Since then, the Euro project has never ceased to reflect such conservative and inherently anti-Keynesian impulses, which are now perfectly expressed in the Stability and Growth Pact. But if the design of European integration was inspired by a desire for an “ordered society,” it resulted in generalized instability, as we witness today. This paradox is at the root of the inability of European elites to understand the causes of the euro’s crisis and of their stubborn reliance on the same deadly provisions that contradict their intentions of strengthening Europe, in what appears increasingly to be a collective denial of reality.

Keywords:

• economic history
• European Union
• financial instability
• France
• potential output
• social order
• structural deficit
• supranational currency
• technocracy

Notes

Diamond takes the Easter Island collapse as a perfect example: the ruling priesthood, wishing to call for the return of their gods, destroyed the entire magnificent forest to drag the statues to the sea. When they realized that there were no trees left, they panicked, but it was too late. Some did warn against the incoming disaster, but they were executed.

In truth, it is a pure postulate. Below we will see how far Walras strayed from mainstream neoclassical economics.

They were of course anti-Marxist but relatively indifferent to the Soviet Union, which they considered another aspect of Modernity.

A speech of Robert Schuman in 1935 at a rally of the “Action Catholique” deserves a special emphasis “one must abolish some infamous laws, those establishing the secular godless school, next restore fundamental religious freedom which is only tolerated by the law … the secular school is ruled by free-masons adversary of the church” Author’s translation, (Lacroix-Riz 2006: 259). At this same rally, the guest of honor was Philippe Henriot, the future propaganda minister of the last days of the Vichy Regime.

Well-known for his famous slogan “wages are always too high” (Lacroix-Riz 2006: 116).

For a detailed analysis of the Uriage School program and students, see Cohen (2012: 116–25). Most of the professors and all the students were right-wing Catholics and many professors of law. They extolled the supreme virtues of sacrifice, effort, and expiation of the sins of the republican state.

The case of Jean Monnet is interesting. A former Wall Street banker, he did not share the anti-Americanism of Perroux and Uriage. After the war, he became close to Perroux through Robert Schuman. He endorsed the European Union and the idea of a single currency. Some in France today, in the far extreme right and left, invoke Monnet as evidence that the European Monetary Union is the outcome of Wall Street and the CIA. However, this is absurd.

In his work on Nazi Germany “From Hitlerian Myths to Europe Ruled by Germany” (1935) published in French and revised in 1940, Perroux addressed the social and racist ideology of the regime but he extols its virtue and potential for progress. A detailed analysis of Perroux’s defense of racism is addressed by a very reliable source (Cohen 2012: 151–59). Perroux never mentioned the fanatical anti-Jewish obsession of the Nazi Nuremberg legislation. His 1940 book was forbidden by the Nazis and put on the famous “Otto list” because Hitler was shocked by Perroux’s connection to the Catholic-led “Conservative Revolution” and mainly by his dream of some Federal Union between France and Germany. Perroux was a former student in Vienna of Ludwig von Mises and Friedrich von Wieser, an ultraconservative Catholic and a fanatical anti-Keynesian, and his economics was taught at Uriage by Dominican monks (Cohen 2012: 166).

While Keyserling was haunted by the “spirit” and the “anti-materialist” culture of Europe, Schuman was too close to the Vatican to ignore that the “spirit” and the “ultra pro-high industry” interests were for longtime bedfellows.

Such a slogan was consistent with Wendel’s and other people’s obsession with the lowest wages possible (Lacroix-Riz 2006: 261ff).

The book was initially published in French in Ankara (!) and never translated into any foreign language. I could never find an explanation for this publication in Ankara. Perroux never spoke again of this book after the war but it is included in his Collected Writings published in 1993. In some way, by “generalization” Perroux, like Hicks, wanted to prove that the General Theory was a very peculiar case of “classical economics.” Hicks, as a true scholar, never insulted Keynes and his model was much more consistent than Perroux’s own makeshift model. Perroux never quotes Hicks. He had a poor knowledge of the literature in English and of English itself. His life is a true French story: after the war, thanks to Schuman and Monnet and the Church as well, he succeeded in having his pro-Vichy involvement fall into oblivion, including his most reactionary writings.

Transmogrification has always been the core of our history; the project survives under various incarnations of the actors but their evil “spirit” is eternally animating the efforts at supreme restoration and the laboratory experiment. A few modern historians dare to claim that what happened in Western Germany after the war with former technocrats having worked with Göring, such as the finance minister of Chancellor Adenauer, Ludwig Erhard (Taylor 2011: 159), was nothing compared to what happened in France. There is a difference: in France the ultracollaborationists and pro-Vichy regime still benefit from the law of silence, a true concerto.

See a superb comment on von Wieser’s social order theory by Caldwell (2002).

They were published in French and integrated in Walras’s Collected Writings (1992). An English translation of the “Etudes d’Economie Politique” by Jan Van Daal was published in 2005 by Routledge under the title Studies in Applied Economics. The problem is that access to this translation today is quite impossible because it exists nowhere but in the archives of the University of Lyon where the collected writings were published, and there is apparently only one copy. Therefore, when I quote Walras’s book on Political Economy, I confess it is my own translation. It is included in the Etudes d’Economie Politique (pp. 433–41) of which it is the conclusion.

If students were taught those beliefs, they would no doubt have strong contempt for scientific general equilibrium theory.

Another mystery: the Perroux plan is today only to be found in an ultracollaborationist review available only in the almost inaccessible archives of the Paris Institute of Political Studies. I rely on the detailed analysis of Bernard Bruneteau (2003: 197) who had access to the Revue de l’Economie Contemporaine, no. 20 (December 1943): 5–12.

See the preface in Péan (2011). The new party replaced the former SFIO (French Section of International Workers) the legacy of the Congrès de Tours (1920) and the creation of the Communist Party. Even before the war, the party never had any audience within the working class. It attracted a lot of pure technocrats sharing a staunch anti-Keynesianism but who were not ultraconservative Catholics. After the war, the SFIO and its union, Force ouvrière, thanks to Jean Monnet and Allen Dulles became awash with funds to fight both the Communist and the Gaullist parties and save the European dream. Mitterrand himself, a moderate Catholic, was a fanatical supporter of the Colonial Empire. For this reason, the Socialist Party was always an elitist party, namely, some French version of the right-wing of the American Democratic Party.

As a member of a think-tank created by Attali to prepare the future election of Mitterrand (for the full story, see Bliek and Parguez, 2006, 2008). I left when at a secret meeting after the so-called Programme Commun that I drafted, I remember that Jacques Delors and most of the members of Institute for Research and Information on Society (IRIS), including many future ministers, at first knew nothing about modern money and the role of banks. The poor euro was finally the child of people who believed that banks could not create money, because their balance sheet was balanced. Cf. Attali (1981) and Bliek and Parguez (2008), for a more detailed analysis of the archaism of the economics of the Socialist Party.

In the book Making the European Union by Harold James (2012), there is never any question about the norms of any straitjacket. It seems that the 3 percent and 60 percent ultimate ratios of deficit and public debt to GDP were supported by Aglietta as adviser of Delors in the final drafts of the Maastricht Treaty. They had no historical foundation; was it some tribute to the holy Christian trinity?

Léon Blum was the leader of the so-called Center-Left coalition (Front Populaire) from 1932 to 1937. He accused Pierre Laval, the pro-Nazi prime minister, of running scandalous deficits.

I published in Money and Production the wonderful paper from 1944 from Jean de Largentaye, “L’Ecueil de l’Economie Monétaire” in 1988, in French. At last, there is now an English translation, “The Reef That Wrecks the Monetary Economy,” by the children of Jean de Largentaye and myself in the International Journal of Political Economy 42, no. 1 (Spring 2013).

See the note written by two techno-engineers of the French Directorate of the Treasury and Economic Policy. Thierry Guyon and Stephan Sorbe, Cahiers de la Direction Générale du Trésor et de la Politique Economique (2009).

As shown by Galbraith (2008), the predator is doomed sooner or later because of a lack of prey even in the flat earth anti-universe of the final fiscal treaty. Short of boats to fish, Easter Islanders started to rely on cannibalism.

Additional information

Notes on contributors

Alain Parguez

Alain Parguez is professor emeritus of economics, University of Besançon, France. The author is grateful to Riccardo Bellofiore, Orsola Costantini, Thomas Ferguson, Annie Lacroix-Riz, Daniel Pichoud, Mario Seccareccia, and Slim Thabet for various forms of assistance and to the Institute for New Economic Thinking for financial support.