For the last few episodes, I’ve been going through some of the most important legislation that the new Federal government created during its first year or two in office. There are two controversial issues that I’ve largely avoided discussing because I wanted to devote a full episode to those issues and how they came to be resolved together.
Moving the Capital
One of the biggest debates was over where to move the new federal capital. During the Revolutionary War, the Congress had met primarily in Philadelphia, which was relatively central and was also the largest city on the continent. Congress fled a few times, moving temporarily to Baltimore, Maryland and York, Pennsylvania when the British army threatened. Toward the end of the war, delegates didn’t think Pennsylvania was doing enough to protect them from angry Continental soldiers who were demanding their promised pay and benefits. Congress moved to Princeton, New Jersey for a time, then to Annapolis, Maryland, which is where they were when the army finally disbanded in 1783. Congress moved to Trenton, New Jersey the following year and then to New York City the year after that. It remained in New York City for four years until the US Congress took over in 1789. Congress also continued to meet in New York City.
Getting the capital meant more money for the local economy. Members of Congress would rent rooms and make use of local taverns. Many appointed officials would move to town. It would also be much easier for local delegations to travel between home and the capital, if it was nearby. Plus there was the prestige of hosting the nation’s capital.
There were all sorts of debates over whether the capital should be near the center of wealth or population. Bigger cities argued they had the facilities in place to host the government. Smaller towns and more rural areas touted the idea that the capital should be built to suit the new government.
Some argued that the capital should be built on the western frontier, somewhere out in the Northwest Territory so that as the population moved further west, the capital would become more central. Others argued that a capital on the coast would make it easier for many delegates to travel there by ship. Some argued for no permanent capital at all, arguing that the capital should move every few years so that no one region benefitted permanently.
Of course, there were all sorts of personal interests as speculators who owned land in a particular area hoped that the capital would boost the value of their land. There were also a range of parochial interests. Southerners feared that if the capital moved to Pennsylvania, they would be unable to be attended by their slaves while working there.
The debate entered the House floor in August of 1789 when Thomas Scott of Pennsylvania urged the government be moved to his state. Congressman Fisher Ames of Massachusetts wrote about the politicking, deal making, and vote swapping being considered as each faction tried to get its way. Most of the southern block was willing to back a capital on the Potomac River, since Virginia was about as far south as any northern state was willing to consider.
By September, the Pennsylvania delegation negotiated an agreement with James Madison of Virginia to move the capital back to Philadelphia temporarily, with the intent of building a permanent capital on the Potomac. Pennsylvanians were gambling that once the capital moved there, they could fight to make it permanent in a later fight.
To counter this proposal, the New England States and New York threw their support to a permanent capital on the banks of the Susquehanna river in central Pennsylvania, while temporarily remaining in New York City. This divided the large Pennsylvania Delegation on the question.
Madison still tried to sell the Potomac option as the most central and also with easy access to the western territories as the nation grew. Some southerners also backed this location with the argument that the northern federalists had already won votes on so many other issues, that forcing a northern capital might cause southern delegates to rethink remaining in the Union at all. They also argued that the southern population was the fastest growing region, meaning a more southern capital would be closer the population center in future years.
Massachusetts Congressman Theodore Sedgwick retorted that the growing south was mostly slaves, who shouldn’t really be considered part of the population. This was not racism. Remember I talked about Sedgwick in an earlier episode, he had represented Mumbet, now Elizabeth Freeman, arguing in court that the Massachusetts Constitution invalidated slavery in that state. Sedgwick also argued that the Potomac was just too miserable an environment, especially for northerners. He noted the number of New Englanders who died of disease soon after moving to those southern climates.
In the fall of 1789, the House had voted pretty decisively, 32-19, to move the permanent capital to the banks of the Susquehanna in Pennsylvania. They voted to appoint three commissioners to select the best site, to purchase land, and to begin a four year construction of the new capital. In the meantime, the capital would remain in New York.
The plan, however, fell apart in the Senate. Even Robert Morris, one of the Pennsylvania Senators, refused to support the site in Pennsylvania. He wanted the capital in the Philadelphia suburb of Germantown. Morris offered a gift of $100,000 to start the building process if Congress agreed to his site. Morris managed to change enough votes to get a tie in the Senate for Germantown, with Vice President Adams breaking the tie vote in favor of the Germantown location.
The amended bill then returned to the House. In order to prevent a final vote, Madison amended the bill again for another change near the end of the session. He Demanded an insertion that Pennsylvania law would apply in the new capital, at least until federal laws could be created. This change, as any change would, sent the bill back to the Senate, which then voted to postpone the question until the next session since they were too busy finishing other work in the final days.
When Congress returned for its second session in January, 1790. Opponents of the Germantown location blocked immediate consideration by establishing a rule that all proposed laws had to be reintroduced from scratch in the new session. Congress could not simply continue with its work on the existing bill. The result was that the issue languished for months as Congress focused on other matters.
Debt Assumption
One of the other matters that took up Congress’ attention was that of the federal debt. Remember that one of the main reasons that many leaders wanted this new federal government was so that they could finally do something to pay down the war debt. Both the Continental Congress and the States had borrowed heavily to finance the war. All those Continental Dollars were notes that promised that the holders could exchange them for gold and some future date. Many doubted that date would ever come. It had been more than a decade since most of those notes had been issued and almost nothing had been repaid.
By the end of the war, in the early 1780s, this paper had become virtually worthless. It took between $500 and $1000 Continental Dollars to buy anything that would take only $1 in specie. The term “not worth a Continental Dollar” became a common expression to describe something of no value at all. This began to turn around after the adoption of the new Constitution. Speculators began buying up more Continental paper, hoping that the new government would finally exchange it for its face value.
I mentioned back in Episode 365 when Washington gave his State of the Union Address, that he made the debt a priority for his administration. He had Secretary of Treasury Alexander Hamilton working on a report, which was released just after the President’s address.
His Report on Public Credit identified about $77 million dollars worth of public debt. This included both the original emissions, plus compounded interest over time. The bulk of the debt, about $42 million, was owed to Americans holding Continental paper. Another $11-$12 million was foreign debt, owed primarily to France, and to private banks in the Netherlands. The remaining roughly $25 million was state debt. This was not incurred by the federal government but rather by state governments as part of their effort to win the Revolutionary War.
Hamilton proposed that the federal government assume the war debts held by the states, allowing all debt to be repaid in a more organized way. Hamilton argued that keeping the debt divided between the states and the federal government would only lead to collision, confusion, and interfering regulations.
The proposal was a daunting one. The interest alone on the national debt would be about $4.5 million per year. That was more than three times the total revenue that the federal government expected to raise. Hamilton proposed to renegotiate some of this to a lower interest rate, which would help, and that the government could borrow additional funds in Europe at a lower interest rate, and use that money to repay the higher interest loans. His plan also called for higher taxes to be used in a sinking fund. That essentially means that the taxes raised would be dedicated to the purpose of repaying debt and could not be used for other things that Congress might want to spend money on. This would help assure investors of repayment and would help him to negotiate the lower interest rates that they needed.
Politically, this plan had the benefit of strengthening the federal government. Wealthy creditors waiting to be repaid would be more willing to support higher taxes to raise the funds. They would also be more focused on the well being of the federal government and would support policies that protected the new government’s stability and well-being.
States, relieved of their debts, could also reduce property taxes that had led to unrest such as Shays Rebellion. Not all states, however, liked this idea. Many states, like Virginia, had not taken on as much war debt as others. Some states had also been more aggressive than others in paying down their debts. Maryland and North Carolina had already repaid all of its war debt. Massachusetts and South Carolina accounted for 40% of all state debt. Why should the slacker states be relieved of debt that all the other states would be responsible for repaying. The result was that states that did not have much or any debt opposed the idea of state assumption.
Another major criticism was that most of the money raised would be going to money speculators. These were the men who bought up this paper and pennies on the dollar, and now expected to be paid in full. Opponents argued that original holders of the paper, of which there were almost none, could be paid in full, but that others would be able to sell their paper at market rates, which before his plan were still only a few cents on the dollar. Speculators had even rushed to southern states to buy up paper before word of Hamilton’s plan reached those states. Many believed that money speculators should not be rewarded for their sharp dealings. They should get their money back, and maybe a little more, but not this huge windfall that repayment at face value would give them.
Hamilton opposed this idea. It would be ruinous to federal credit if the government refused repayment , as promised, at face value. This would make it harder to negotiate lower interest rates on all the debt. The government must keep its promises to repay the debt in full to the current holder of that debt.
The Compromise
Hamilton had expected James Madison to support his plan. Back in 1787, the two men had discussed all of this at the Constitutional Convention, and found themselves in agreement on this and many other issues. Even as late as November of 1789, Hamilton had written to Madison about the debt issue and Madison said nothing about any concerns about assumption of state debt.
But by 1790, Congressman Madison had to support the interests of Virginia. It was not in Virginia’s interests to let the Federal government assume state debts, and Virginia voters were not crazy about enriching money speculators at the expense of higher taxes on themselves. Madison had written before that enriching speculators at the expense of workers would only encourage more people to engage in speculation and less of the population to do actual work.
Madison also disliked the plan for the same reason that Hamilton liked it. The debt would help to consolidate power in the federal government at the expense of the states. Government taxing power would give it too much economic power over the state economies.
Madison became a leading opponent of Hamilton’s plan. He proposed numerous changes, such as buying debt from speculators at market value, and of having the federal government reimburse states for debts they had already paid. Madison also hoped to keep the revenue at the state level, rather than having the federal government collect and disburse everything.
The result of Madison’s opposition was that the House Committee of the Whole voted against Hamilton’s debt plan in April of 1790. Two weeks after that, the House voted to discontinue debate on assumption of debts. In early June, Congress voted to support some portions of the plan, including trying to get new loans to pay interest on existing debt and to create a sinking fund to reassure creditors. Strong support from northern delegates also agreed to pay off all debts at full face value. But there was no assumption of state debts.
Despite these votes, negotiations continued. Northern states were demanding assumption of all state debts. Hamilton believed it was a key component of his plan. Shortly after the June vote leaving out assumption, Hamilton met with members of the Pennsylvania delegation, hoping to trade their support for assumption by agreeing to round up more votes to move the capital to Pennsylvania.
At the same time those Pennsylvania delegates were negotiating with the Virginia delegation to move the permanent capital to Virginia after moving it temporarily to Philadelphia.
There is a famous story told by Thomas Jefferson years after these events, that he came across a dejected looking Hamilton a few weeks after his assumption loss in Congress. As Jefferson tells the story, he agreed to have Hamilton, Madison and several others delegates from Maryland and Pennsylvania to a dinner at his house to discuss a compromise plan. It was at this dinner that Jefferson got all the major players to agree to a compromise plan where Congress would vote to allow the assumption of debts, and that the capital would move to Philadelphia for a few years, but then finally establish its permanent location on the banks of the Potomac.
There is no reason to doubt this story that the final details of the agreement were worked out at Jefferson’s dinner. But it is clear that the various parties had been discussing this deal for a few weeks prior. Madison could not support the assumption bill, not if he wanted to be reelected. He did, however, agree not to actively oppose the bill, and also agreed that he would find at least three southern congressmen who would back assumption.
In exchange, Hamilton agreed to use his influence with New England and New York Senators and Congressmen to permit the permanent location of the capital on the Potomac. To get the Pennsylvania delegation on board, they also agreed to move the capital back to Philadelphia right away, and that it would remain there for ten years. Hamilton also agreed to recalculate Virginia’s debt in a way that assured that taxes collected from Virginians would be about equal to the amount that Virginia would receive for its assumed debts.
The compromise seemed to work. Madison secured two votes from Virginia and two from Maryland to support the assumption bill, thus allowing it to pass in late July. A few weeks prior, the House narrowly passed a Residence bill, moving the capital to Philadelphia for ten years, then permanently to a location on the Potomac. President Washington, who supported both bills, happily signed both of them into law. By August, everything was done. Days after completion of this grand compromise, Congress completed its session and returned home.
New York in particular was unhappy with this deal. They were not crazy about assumption and very much wanted to keep the capital. Opponents saw this blatant political horse trading as indecent. Many New Yorkers were even critical of President Washington, claiming he pushed this through so that the capital would be near his home.
Also as expected, Virginians were unhappy with what they saw as a surrender to northern speculators. Opponents also saw this as a betrayal of Republican liberty by putting so much economic power in the hands of the federal government. Back in Richmond, Patrick Henry got the Assembly to vote on an official condemnation of the compromise. They petition congress to repeal the assumption law. They did however, see ok with moving the capital to Virginia.
Despite these angry responses by some, most moderates seemed to accept the deal and were happy to put two divisive disputes behind them. Washington’s approval of the deal also seemed to satisfy many. Many New Englanders, as well as indebted South Carolina, were happy with the assumption plan. Philadelphians were happy to get the return of the capital. Even though it was temporary, many still hoped they could make it permanent before the end of the decade.
While there was a great deal of fighting and conflict, the First Congress had completed its work. Members returned home at the end of the summer to prepare for their first reelection bids in the fall.
Next week, we will take a closer look at the new country as it begins its first national census.
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Next Episode 368 The Census of 1790 (coming soon)
Previous Episode 366 Rhode Island and the Treaty of NY
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Further Reading
Websites
“Assumption of the State Debts, [22 April] 1790,” Founders Online, National Archives, https://founders.archives.gov/documents/Madison/01-13-02-0117.
Federalism and the Problem of State Debts: https://www.hamilton.edu/documents/Blosser%20Levitt%20paper.pdf
Compromise of 1790: https://www.battlefields.org/learn/articles/compromise-1790
Compromise of 1790: https://prologue.blogs.archives.gov/2015/05/31/the-compromise-of-1790
The Dinner Table Bargain, June 1790: https://www.pbs.org/wgbh/americanexperience/features/hamilton-dinner-table-bargain-june-1790
Bates, Whitney K. “Northern Speculators and Southern State Debts: 1790.” The William and Mary Quarterly, vol. 19, no. 1, 1962, pp. 30–48. JSTOR, https://doi.org/10.2307/1919956
Bowling, Kenneth R. “Dinner at Jefferson’s: A Note on Jacob E. Cooke’s ‘The Compromise of 1790.’” The William and Mary Quarterly, vol. 28, no. 4, 1971, pp. 629–48. JSTOR, https://doi.org/10.2307/1922191.
Edling, Max M. “‘So Immense a Power in the Affairs of War’: Alexander Hamilton and the Restoration of Public Credit.” The William and Mary Quarterly, vol. 64, no. 2, 2007, pp. 287–326. JSTOR, http://www.jstor.org/stable/4491623
Cooke, Jacob E. “The Compromise of 1790.” The William and Mary Quarterly, vol. 27, no. 4, 1970, pp. 524–45. JSTOR, https://doi.org/10.2307/1919703
Risjord, Norman K. “The Compromise of 1790: New Evidence on the Dinner Table Bargain.” The William and Mary Quarterly, vol. 33, no. 2, 1976, pp. 309–14. JSTOR, https://doi.org/10.2307/1922168
“James Madison to James Monroe, 1 June 1790,” Founders Online, National Archives, https://founders.archives.gov/documents/Madison/01-13-02-0164
“George Washington to David Stuart, 15 June 1790,” Founders Online, National Archives, https://founders.archives.gov/documents/Washington/05-05-02-0334
“Thomas Jefferson to James Monroe, 20 June 1790,” Founders Online, National Archives, https://founders.archives.gov/documents/Jefferson/01-16-02-0312
“Thomas Jefferson to Thomas Mann Randolph, Jr., 20 June 1790,” Founders Online, National Archives, https://founders.archives.gov/documents/Jefferson/01-16-02-0314
“Memorandum from Thomas Jefferson, 29 August 1790,” Founders Online, National Archives, https://founders.archives.gov/documents/Washington/05-06-02-0176
“X. Jefferson’s Account of the Bargain on the Assumption and Residence Bills, [1792?],” Founders Online, National Archives, https://founders.archives.gov/documents/Jefferson/01-17-02-0018-0012
Residence Act of 1790: https://www.ruhr-uni-bochum.de/gna/Quellensammlung/03/03_residenceact_1790.htm
August 4, 1790: Debt Plan of Alexander Hamilton, America’s First Chief Operations Officer, Becomes Law: https://constitutingamerica.org/august-4-1790-debt-plan-of-alexander-hamilton-americas-first-chief-operations-officer-becomes-law-guest-essayist-scot
Free eBooks
(from archive.org unless noted)
Brant, Irving James Madison: Father of the Constitution, 1787-1800. Bobbs-Merrill Co. 1950 (borrow only).
Byran, Wilhelmus B. A History of the National Capital, Vol. 1: 1790-1814. New York: MacMillan Co. 1914.
Losing, Benson (ed) The Diary of George Washington, From 1789 to 1791, Richmond: Press of the Historical Society, 1861.
Malone, Dumas Jefferson and the Rights of Man, Little Brown and Co. 1951. (borrow only)
Tindall, William Origin and Government of the District of Columbia, Washington, DC: Government Printing Office, 1909.
Brant, Irving James Madison: Father of the Constitution, 1787-1800. Bobbs-Merrill Co. 1950 (borrow only).
Byran, Wilhelmus B. A History of the National Capital, Vol. 1: 1790-1814. New York: MacMillan Co. 1914.
Losing, Benson (ed) The Diary of George Washington, From 1789 to 1791, Richmond: Press of the Historical Society, 1861.
Malone, Dumas Jefferson and the Rights of Man, Little Brown and Co. 1951. (borrow only)
Tindall, William Origin and Government of the District of Columbia, Washington, DC: Government Printing Office, 1909.
Books Worth Buying
(links to Amazon.com unless otherwise noted)*
Bordewich, Fergus M. The First Congress: How James Madison, George Washington, and a Group of Extraordinary Men Invented the Government, Simon & Schuster, 2016.
Cerami, Charles A. Dinner at Mr. Jefferson's: Three Men, Five Great Wines, and the Evening That Changed America, Trade Paper Press, 2008.
Chernow, Ron Alexander Hamilton, Penguin Press, 2004.
Elkins, Stanley M. and Eric McKitrick, The Age of Federalism: The Early American Republic, 1788–1800, Oxford Univ. Press, 1993 (borrow on archive.org).
Ellis, Joseph J. Founding Brothers: The Revolutionary Generation, Knopf, 2000.
Ellis, Joseph J. The Quartet: Orchestrating the Second American Revolution 1783-1789, Alfred A. Knopf, 2015.
Ferguson, E. James The Power of the Purse: A History of American Public Finance, 1776-1790, V-Books LLC, 2011.
Leibiger, Stuard (ed) A Companion to James Madison and James Monroe, Wiley-Blackwell, 2012.
Leibiger, Stuart Founding Friendship George Washington, James Madison, and the Creation of the American Republic, Univ. of Virginia Press, 1999.
Meacham, Jon Thomas Jefferson: The Art of Power, Random House, 2012
Randall, Willard Sterne Thomas Jefferson: A Life, Henry Holt and Co. 1993.
* As an Amazon Associate I earn from qualifying purchases.
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