State credit and reconstruction: the first New Zealand Labour Government

Purpose - The aim of this paper is to show that there are workable alternatives to the debt-finance system in the form of "state credit."Design methodology approach - The example used for the practical application of "state credit" is the State Housing programme of the 1935 New Zealand Labour Government. The primary sources are mainly the pamphlets of John A. Lee, responsible for the State Housing and Labour finance policies.Findings - The paper shows that "state credit" was used on a large-scale for constructive purposes, which not only provided debt-free funding for an enduring construction programme, but one that did so without accompanying inflation or other adverse consequences which are warned of by orthodox economists.Research limitations implications - The paper focuses on a single example of the use of state credit, albeit an important and large-scale one.Practical implications - State credit was used in a major way during the 1930s to overcome unemployment while constructing something lasting and of enduring social benefit. It is a method that can be reapplied in the present time at a period where debt is reaching crisis point from entire nations down to families and individual consumers; with the most common remedy suggested relief being "austerity" and welfare cuts.Social implications - State credit is a means of achieving large-scale public works, while reducing unemployment, and reducing taxes, rates and prices which generally incorporate into costs the servicing of debts. The social implications are wide-ranging.Originality value - The 1935 State Housing programme had endured as part of an iconic New Zealand social experiment, but one of which the method of funding is now virtually unknown.