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Despite Benjamin's importance to contemporary allegory studies, his understanding of allegory has been widely misconstrued in ways that diminish its applicability to current problems in the field. I attribute this in large part to a failure to integrate his early writings on the subject in The Origin of German Tragic Drama with his later views, expressed in both his writings on Baudelaire and the recently-translated Arcades Project. An examination of this last text in light of the others yields a theory of allegory as a dialectical mode that responds to the destabilization of, or contradiction within, the historically-specific situation from which it emerges. This in turn accounts for the apparent contradictions between Benjamin's several treatments of the topic, each of which considers a unique moment of cultural production.