the Bank of New York to make loans to manufacturing companies on easy terms, giving the assurance that the bank should suffer no diminution of its pecuniary facilities by so doing.[1] In March of that year, the Bank of the United States and the Bank of New York had agreed upon a policy of co-operation, but, in 1796, the president of the Bank of the United States having directed the New York branch to demand payment of an amount due from the Bank of New York, the latter was forced to contract, producing alarm. Thereupon Hamilton wrote to his successor, Wolcott, asking him to interfere to produce a mitigation of this order. He thinks that this will be good policy, the weakness of the New York Bank being due to its loans to the government. Wolcott replied: "I will thank you to inform the president of the New York Bank or any other confidential person that they may rest assured of as full and cordial assistance in any pressure of their affairs as shall be in my power. I think, however, that they must principally rely on sales of stock, and in my opinion any sacrifice ought to be preferred to a continuance of temporary expedients." In the same letter he also said: "These institutions have all been mismanaged. I look upon them with terror. They are at present the curse, and I fear they will prove the ruin of the government. Immense operations depend on a trifling capital, fluctuating between the coffers of the different banks." The significant facts in these proceedings are: the interference of the Secretary of the Treasury in the collision of interests between different banks, and the function of mediator or arbitrator which he assumes. His interference in the money market, although noticeable, was not nearly so important.
Wolcott wrote to Hamilton in 1795: "Banks are multiplying like mushrooms. The prices of all our exports are impaired by improper negotiations and unfounded projects, so that no foreign market will indemnify the shippers." And again: "It would astonish you to know how far the capital of this country has been placed in the power of France by speculations to that country and the excessive use of credit during the last season. If we have a good crop and the ardor of speculation can be checked so as to allow a loss which I know to be inevitable to fall gradually upon us, the merchants will struggle through; but if we proceed in our present course until a sudden revulsion takes place, the consequences may be serious." These fears were speedily realized in the financial crisis of 1796, which was connected, no doubt, with the financial crisis in Europe which produced suspension of specie payments by the Bank of England.
Early in 1796, before these troubles came on, John Adams wrote to his wife, in view of his approaching accession to the presidency, that the paper money of the country was the worst evil he saw.[2] In 1799 he declared:
"Public credit [i.e., general mercantile credit, not the credit of the government], can never be steady and really solid without a fixed medium of commerce. That we have not such a medium, you know, has been my opinion
