The problems encountered by governments facing large budget deficits arise frequently in economic history. Yet, even when these deficits are reduced and the budget balanced, they still leave a legacy of debt that lingers well afterward. And the inability to roll over this debt can present essentially the same dilemma as the deficits that gave rise to it.

The problem of rolling over existing debt is the focus of this study. It is distinguished from the problem of borrowing to cover a deficit in that it is not concerned with financing a current shortfall of revenues below expenditures, but with refinancing already-incurred indebtedness. When this phenomenon manifests itself in an unwillingness of the public to purchase new government securities as old ones mature, we refer to it as a ‘funding crisis’.

We turn to war-time to start our examination. Wars, Brown (1990) reminds us, are a major reason for the growth of public debt. This was especially true of the 1914–18 War. Among its legacies were major additions to the public debt in all belligerent countries, due both to the costs of waging war and for reconstruction afterwards. Some of these nations escaped their large internal debts as a consequence of hyper-inflation. Others were faced with having to manage much-enlarged public debts, a high proportion of which consisted of short-dated maturities – the so-called ‘floating debt’ – which required treasuries to return frequently to the market for funds.