Jefferson suggested that perhaps he could be of assistance. Jefferson thought that if he could get Hamilton and Madison together on a friendly discussion of the topic, then some sort of an agreement might be made. Jefferson offered to host a private dinner party for the three of them. Jefferson’s account was the only one that survived, and it no doubt was at least partially self-serving and misleading. But Jefferson was able to broker a political bargain of far-reaching historical significance, in that Madison agreed to allow Hamilton’s fiscal program to pass the House (with Madison remaining in public opposition), while Hamilton agreed to use his influence to get the nation’s permanent capital on the Potomac River. In many ways, this dinner party was the Compromise of 1790.
Monroe responded to Jefferson writing that as far as Virginia was concerned, Hamilton’s fiscal plan was viewed as toxic. Monroe went on to say that the location of the permanent capital was of no real consequence or concern to Virginia; in two years, Jefferson would see things the same way as Monroe, telling Washington that the dinner party was the biggest political mistake of his life.
Actually, Jefferson’s version of the dinner party was written in 1792, where his great regret is evident. In fact, several secret meetings occurred in the same general time frame surrounding the debates on the assumption and residence bills. The overriding questions: why were brilliant and sensible men such as Jefferson, Madison, and Hamilton all convinced that the newly established government under the Constitution was so precarious and problematic? Why was the passage of assumption so threatening to so many? What was the Potomac River so symbolic?
Madison had already proven to be the most shrewd and politically savvy veteran of the tumultuous constitutional battles of the 1780s, culminating with his authorship of the Bill of Rights.
Madison had become the master of the inoffensive argument, which again and again proved to be effective and decisive. Madison was so obviously gentle and eager to give credit to others, especially his opponents, that it was very difficult to unleash one’s full fury on Madison without coming off as a brute and/or an idiot. Madison also would wait until someone gave him permission to address what he knew, and then Madison would often go on for hours until the person threw in the towel. Madison was practically invisible and entirely unthreatening, and he used both traits very effectively. Eventually, Jefferson would provide the sweeping vision while Madison would focus on the details to make it happen. But in 1790, Madison’s invisibility didn’t mean subservience to Jefferson, and Madison, behind the scenes, exercised quite a bit of independence from Jefferson.
If there was a specific point in time that started Madison to change, it occurred in January 1790 when Hamilton released his Report on the Public Credit to Congress. Hamilton’s fiscal goals matched up with Madison’s nationalism as recently as Ratification. What troubled Madison wasn’t the goal of properly dealing with the nation’s public credit crisis, but Hamilton’s methods. First up was Hamilton’s plan to reimburse the current holders of securities (the old Continental Dollars). Speculators, having inside information, had purchased who knows how many securities at a fraction of their original value from citizens that had no idea what was coming. Hamilton was surprised when on 11 February 1790 Madison, on the House floor, denounced Hamilton’s reimbursement plan (Madison labeled it as a “scheme”) as a repudiation of the principles of the Revolutionary War.
On the surface, assumption seemed simple enough, in that the federal government would take on (assume) all the accumulated debts of the states (most of which were due to the Revolutionary War). Instead of 13 separate state ledgers, there would only be a national ledger. On 24 February 1790, Madison spoke on the House floor arguing that Hamilton’s plan for assumption was far more complicated than it looked. Madison’s core argument seemed to be economic (but it was largely pro-VA), in that states such as Virginia had paid off most of the wartime debt, and that assumption would force Virginia, via a large tax payment to the national government, to bail out the states that didn’t have their act together.
Madison realized that if Hamilton’s fiscal plan passed, then the new national government would have economic sovereignty over the 13 states. Madison didn’t want his beloved Virginia to trust its future to the new national government. To Madison, assumption was more about power than economics, about true independence. Madison was getting hit by shrill accusations from all sides, with Hamiltonians slamming him for not working towards building a government that would last, to others that called Madison a hypocrite since he had been a nationalist, but now he had reservations.
The key word that Jefferson, Madison, and the South focused on was “consolidation”, which meant to them that the states would be absorbed by the national government. That being said, in letters Madison kept telling confidants that Virginia was safe, in that Washington was President, Jefferson was the Secretary of State, Edmund Randolph was the Attorney General, and that he was the leader in the House. In many ways, Madison was the calm at the center of the storm.
Like Madison, in 1790 Hamilton had amassed the most power and influence he had experienced up to that point. What Hamilton believed he was doing was simple: to bring the mess that was the US economy out of the abyss and to transform the nation into a global economic player with a great credit rating. To Hamilton, that meant that he not only needed a financial plan, but also ways to tap into the potential of US economic production. Hamilton didn’t have the slightest concern as to whether his plan negatively affected any individual or state.
Hamilton saw Madison’s plan to reimburse the original holders of the securities as unrealistic and naive, and Hamilton criticized Madison that he had not bore arms in the Revolutionary War as he had. Hamilton added that the original holders of the securities had not been forced to sell to those speculators for a multitude of reasons. To do what Madison proposed would have been a bureaucratic nightmare, and Hamilton wanted to get the nation past those kind of entanglements. Hamilton wanted to create trust by placing the debt into the hands of those that would use it to foster the national interest.