The extension of the British Empire through continuous warfare was one of the main issues that shaped public debate in late 18th century England. As the public debt considerably grew with the Seven Years War, most of the Enlightenment thinkers denounced this increase as one of the main consequences of anti-liberal government, and as the main cause of Empires' decay. This includes Adam Smith, who criticized the operation of mercantile interests supporting the war, thus deteriorating public finances.

In this context, much attention was raised by the “sinking fund” : a mechanism designed to extinguish public debt, based on the principle of “compound interest”, developed by Richard Price in the 1770s, and introduced in 1786 by William Pitt the Younger. Our first task will then be to present the functioning of this scheme and the circumstances in which it was set up (section 1).

After the outbreak of the war against revolutionary France in 1794, Lauderdale denounced the sinking fund had been turned into a device to finance military effort, allowing the unchecked increase of the debt. By maintaining artificially low interests rates, it benefited mainly the merchants (through cheap investments), who formed the backbone of the political coalition Pitt needed to stay in power. Our second task will be to explain in detail the critique Lauderdale made of the sinking fund (section 2).

In criticizing the sinking fund, Lauderdale took over Smith's argument against the mercantile system. He developed it to precise how merchants' influence on government led to the organisation of a war economy, imposed in a dictatorial way. This organisation was not only opposed to the very principles of British democracy, but also to the principles of political economy, creating public debt and encouraging unproductive investements, that hindered internal economic growth. These developments were presented in his 1804 book, An Inquiry into the Nature and Origin of Public Wealth, in which he made several theoritical contributions to economic thought. The last point will be to show how these contributions could be related to his general critique of the war economy built in England at the end of the 18th century (section 3).