The Dinner - Hamilton and Madison

At the center of this chapter is a dinner party, arranged by Thomas Jefferson, between Alexander Hamilton and James Madison.  According to Jefferson, by arranging this simple dinner, he had "brokered a political bargain of decidedly far-reaching significance." However, exactly what the bargain was and who got what is not a simple matter.

Conventional history declares that:

Madison agreed to permit the core provision of Hamilton's fiscal program to pass; and in return Hamilton agreed to use his influence to assure that the permanent residence of the national capital would be on the Potomac River.

But what was this "core provision of Hamilton's fiscal program"? There's the rub. Whenever money is involved, nothing is what it seems.

Hamilton's program seemed simple; he wanted the new federal government to assume the debts incurred by the states during the Revolutionary War and "all citizens who owned government securities should be reimbursed at par --- that is, the full value of the government's original promise. "

Here's the problem, as Madison increasingly saw it:

But many original holders of the securities, mainly veterans of the American Revolution who had received them as pay for their service in the war, had then sold them at a fraction of their original value to speculators. . . . The picture that began to congeal in his ]Madison's] mind was the essence of injustice: battle-worn veterans of the war for independence being cheated out of their just rewards by mere moneymen." 

But Madison had other problems with Hamilton's proposal:

. . . his core objections were economic. Most of the southern states, Virginia among them, had paid off the bulk of their wartime debts. The assumption proposal therefore did them an injustice, by "compelling them, after having done their duty, to contribute to those states who have not equally done their duty."

So why did Madison ultimately support the Assumption Bill?  Madison was from Virginia, and out of the deal his state got more than just the location of the new federal capital.

. . . the new version of the Assumption Bill would reduce the state's [Virginia's] total obligation so that the debt assumed and the federal taxes owed would turn out, rather miraculously, exactly equal ($3.5 million). Being therefore to receive exactly what she is to pay," . . . "she will neither win not lose by the measure."

Plus the capital would be in Virginia!  And that would "vivify our agriculture and commerce by circulating thro' our state an additional sum every year of half a million dollars."

So, for Virginia, it was as much about the money as the location.