Despite stiff opposition to the new Constitution and its centralized federal power, Alexander Hamilton’s funding schemes found approval in deals and speculation on future profits with federal bond schemes. He additionally wanted to establish a central bank, though wary of this enterprise issuing paper money as governments could not be trusted to exert self-discipline in fiscal matters.
Bernhard Thuersam, Circa1865
Hamilton and Jefferson’s Capital Deal
“Hamilton knew perfectly well that every State wanted the capital, and that Jefferson and Madison especially wanted the capital located in the rural South, away from what they regarded as the commerce and corruption of the cities. Hamilton intercepted Jefferson outside President Washington’s Broadway [New York City] mansion one day shortly after [his government assumption of State debt] bill’s defeat and asked for help in getting his bill through Congress. Jefferson, who had opposed the adoption of the Constitution itself, and favored the States in nearly all federal-State disputes over the distribution of power, was opposed to the bill.
Nonetheless, he offered to meet Hamilton the following night for dinner, with Madison in attendance. There a deal was made. Enough votes would be switched to ensure passage of Hamilton’s bill, in return for which Hamilton would throw his support to having the new capital located on the muddy and fever-ridden banks of the Potomac. To ensure Pennsylvania’s cooperation, the temporary capital was to be moved to Philadelphia for ten years.
The deal was made, and the bill was passed and signed into law by President Washington. Hamilton was right that [federal] bonds would find acceptance in the marketplace, and the entire issue sold out in only a few weeks.
The new government, with a monopoly on customs duties and possessing the power to tax elsewhere, was simply a better credit risk than the old [Articles of Confederation] government and the States had been. When it became clear that the US government would be able to pay the interest due on these bonds, they quickly became sought after in Europe, just as Hamilton had hoped, especially after the outbreak of the war in which the other European powers tried to reverse the tide of the French Revolution.”
(Hamilton’s Blessing, The Extraordinary Life and times of Our National Debt, John Steele Gordon, Penguin, 1997, pp. 30-33)