in which much capital is required.  The interest of capital having been reduced in such countries, he argued, by the necessity of continually resorting to inferior soils, they can undersell countries where profit is high in all trades needing great capital.  And in this theory there is doubtless much truth, though it can only be applied in practice after a number of limitations and with a number of deductions of which the older school of political economists did not take enough notice.  But the same principle plainly and practically applies to England, in consequence of her habitual use of borrowed capital.  As has been explained, a new man, with a small capital of his own and a large borrowed capital, can undersell a rich man who depends on his own capital only.  The rich man wants the full rate of mercantile profit on the whole of the capital employed in his trade, but the poor man wants only the interest of money (perhaps not a third of the rate of profit) on very much of what he uses, and therefore an income will be an ample recompense to the poor man which would starve the rich man out of the trade.  All the common notions about the new competition of foreign countries with England and its dangersnotions in which there is in other aspects much truth require to be reconsidered in relation to this aspect.  England has a special machinery for getting into trade new men who will be content with low prices, and this machinery will probably secure her success, for no other country is soon likely to rival it effectually.

There are many other points which might be insisted on, but it would be tedious and useless to elaborate the picture.  The main conclusion is very plainthat English trade is become essentially a trade on borrowed capital, and that it is only by this refinement of our banking system that we are able to do the sort of trade we do, or to get through the quantity of it.

But in exact proportion to the power of this system is its delicacy I should hardly say too much if I said its danger.  Only our familiarity blinds us to the marvellous nature of the system.  There never was so much borrowed money collected in the world as is now collected in London.  Of the many millions in Lombard street, infinitely the greater proportion is held by bankers or others on short notice or on demand; that is to say, the owners could ask for it all any day they please:  in a panic some of them do ask for some of it.  If any large fraction of that money really was demanded, our banking system and our industrial system too would be in great danger.

Some of those deposits too are of a peculiar and very distinct nature.  Since the Franco-German war, we have become to a much larger extent than before the Bankers of Europe.  A very large sum of foreign money is on various accounts and for various purposes held here.  And in a time of panic it might be asked for.  In 1866 we held only a much smaller sum of foreign money, but that smaller sum was demanded and we had to pay it at great cost and suffering, and it would be far worse if we had to pay the greater sums we now hold, without better resources than we had then.