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As NATO leaders gathered in Chicago, and as France settled in with its new socialist leadership, the word was that to get out of crisis, Europe has to choose between growth and austerity.

On its face, this is a false choice. As Milton Friedman always taught, the greatest deadweight drag on economic development is government spending.

But Friedman was a “Chicago Boy,” an American “cowboy-capitalist,” as the Europeans are so wont to say. OK: there’s no need to learn from Milton Friedman. The Europeans can draw deeply from their own past false moves, and successes, to see the road ahead.

The last time Europe faced a debt and currency crisis that appeared insoluble was the early 1930s. Then, the choice the various nations made was to back out of the rudiments of the currency union they had put together in recent years and compete against each other by means of strategic currency devaluations and tariffs.

This essentially forced the national economies of Europe into conditions of autarky. But since even the biggest of them was medium sized, it was a ticket to minimal living standards. Sure enough, there came a war where the principal objective of the aggressors was more resources.

After World War II, in the late 1940s, the time for choosing came again. For a while, countries like the nascent West Germany, and Britain, tried to brazen it out with cheap currencies, import controls, and state-sector bloat. But in time, and indeed under the guidance of the United States, certain countries—especially the big Continental ones, West Germany, France, and Italy—chose to join the “Bretton Woods” plan to fix their currencies together, via a common link to the dollar.

The most famous fact about the phenomenal European recovery that began in the late 1940s is that it was supported by the Marshall Plan—the $13 billion dollars in reconstruction aid the United States pledged to Europe after it realized it had fumbled China away to the Communists. But how aware are we of this corollary fact: if a nation accepted Marshall Plan funds, it could not as well accept stabilization money from the International Monetary Fund.

What this meant, in practice, is that once you took a cent of Marshall money, you had to maintain the fixed rate of exchange against the dollar. If the private markets took that rate even 1% beyond par, your currency stood to be de-linked from the dollar, with no recourse to IMF help.

It’s funny we are so quick to associate the “capital infusion” of the Marshall Plan with the boom that gathered in Europe seemingly under its auspices. The real secret of the Marshall Plan’s success was what it did to enforce a currency union.

Growth rates? West Germany cruised at 8% per year in the dozen years to 1960, France at 6%, and Italy near that. Great Britain, which was insouciant toward Bretton Woods and bent on the dole and the welfare state, brought up the rear at 2.6%.

The postwar period proved to be the Continent’s greatest run of economic growth since the industrial revolution itself. And it was actualized by a commitment to fixed exchange rates.

In contrast, the worst experience Europe had since the industrial revolution was that of the Depression and World War II. And this was accompanied by a commitment to fiat currencies and discretionary domestic economic policy.

Growth vs. austerity, in other words, is not the choice that Europe faces today. In its latest hour of need, Europe needs to remember that it has the resources within its own experience to see the kind of outcomes that the various choices it can ponder today will lead to. Currency union has been a boon to Europe, on heroic scale in the past; catch-as-catch can has led to its darkest hours.

Books on the topic discussed in this essay may be found in The Imaginative Conservative BookstoreOriginally published at Forbes.com the essay is reprinted here with gracious permission of Brian Domitrovic.

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