It didn’t help matters that in Hamilton’s offensive to promote public credit and assumption he used words like “consolidation” and “nationalize”, which raised alarm bells to Madison and the Southern states. Hamilton’s plan was a projection of his own audacious personality during the fluid conditions that existed in the early years of the nation under the Constitution. Hamilton was unique in that he recognized that to unleash the beast that was the US economy, there needed to be strategic management and orchestration, which could only be done if the federal government had the power to do so. Jefferson and Madison believed that the government should just get out of the way and the natural economic forces would work. But Hamilton, long before John Maynard Keynes, saw that a national government could play a role in managing a nation’s economy, and then perhaps to achieve unparalleled prosperity.
To Hamilton, when money was spread out, it was only money, but when it was concentrated, it was capital. To Hamilton, a national debt would be a “national blessing”, but to Madison a “Public Debt was a Public Curse”. Hamilton saw America’s urban elites (merchants, bankers, business owners) as the central figures in the ascendancy of the nation. Hamilton’s financial plan was a total endorsement of commerce as the lifeblood of America. Hamilton wanted to channel the self-interest of the urban elites into promoting the national interest.
But Virginians such as Jefferson and Madison were psychologically incapable of getting their minds around basic economic concepts, since to them land, not fluid capital, was the center of all things. Bankers and speculators didn’t add to an economy, to Jefferson and Madison they were a bane; to them, the real problem was commercial sources of wealth crowding out agricultural wealth. Also, many in the planter class, such as Jefferson, , were heavily in debt to British and Scottish creditors; the planter class simply believed that they were being bled to death by a conspiracy. The refusal to bring their behavior into economic reality, of denying that they were the reason for their own predicament led to the willful ignorance of the economic systems of which Hamilton was expert. In a strange way, Jefferson and Madison took great pride in not having the slightest understanding of what Hamilton was trying to accomplish.
Inviting Madison and Hamilton to a dinner party fit Jefferson’s personality in large part because he absolutely hated (and avoided) face-to-face confrontation. Jefferson was miserable in a debate because the whole tone of arguing freaked him out. To Jefferson, argument was a dissonant noise that served to do nothing but distract and to upset the natural order of things. Madison knew there was an invisible line inside of Jefferson that when crossed, out came Jefferson the Tiger where he was engaged in a Holy War, not an argument. Short of that invisible line, Jefferson was endlessly polite and accommodating, and genuinely pained with the process of partisan politics, at least in 1790. As SecState, Jefferson understood the need to rescue America’s credit rating since the US would never be taken seriously in Europe (e.g. Dutch bankers). The Jefferson of 1790 saw Hamilton’s plan overall as a good thing for the nation. To Jefferson then, the more important issue was the debate over where the future permanent national capital would be located, which by September 1789 had started to become fierce.
Complicating the situation was that it was agreed that there should be a temporary capital while the future permanent capital was built; but there was serious concern that the temporary capital would become the permanent capital. When Jefferson arrived in New York City in March 1790, there had been 16 proposed sites for the future capital, and all had failed to pass, among them were: Annapolis, Baltimore, Carlisle (PA), Frederick (MD), Germantown (PA), New York City, Philadelphia, Trenton (NJ), and the Susquehanna and Potomac Rivers. Geographically, it seemed that Philadelphia had the edge over all the other sites.
By June 1790, Madison was not promoting the Potomac, but rallying opposition against Philadelphia. Madison had pointed out that from northern Maine (which was part of Massachusetts) to southern Georgia, the geographic midpoint of the nation was Mount Vernon. Non non-Virginians, Madison’s (and Washington’s) preference for the Potomac was seen as a “Wigwam Place”. Madison kept the Potomac in the mix, promoting it as the link to the interior of the US via the Ohio River Valley (Virginians viewed themselves as the Gateway to the West). But that perspective was confined to Virginia, and was viewed as nothing more than a fancy of Madison’s imagination by non-Virginians. By June 1790, Madison had largely given up hope that the Potomac would win out in the residency debate . . . and then came the possibility of making a deal.
In effect, the dinner party hosted by Jefferson was the final chapter after many other meetings on the topic, which in essence meant that the groundwork for a bargain had already been laid out. In actuality, the Potomac had already been secured as the location of the future capital before Jefferson’s dinner party, which meant that Hamilton didn’t have to work to change any votes in Congress on residency, which he had already shown that he could not do. Instead, Hamilton needed to convince members in Congress from Massachusetts and New York to not change their vote. It was Madison that had to work to get fellow members in Congress to change their votes on assumption. Madison needed at least three representatives to change their vote, and eventually four switched, all of them from districts that bordered the Potomac.
Therefore, the major business of Jefferson’s dinner party was something else, most likely determining the debt/tax total for Virginia concerning assumption. So Madison got what he wanted, a specific financial calculation for Virginia before the vote on assumption, and Hamilton did what he said he would do, be flexible to make Virginia more comfortable with assumption. Jefferson left that out of his account of the dinner party in 1792 since it wasn’t very romantic, but he immediately sent out letters to confidants telling them that Virginia’s debt and tax amount had been recalculated (conveniently, the Virginia debt assumed and the taxes paid to the federal government each amounted to $3.5m).
In August 1790, Jefferson proposed that the details and decisions concerning the actual location, size, and shape of the future capital on the Potomac be made by the Executive branch (meaning Washington). Jefferson and Madison toured the Potomac River, and made their decision on the location by January 1791. So, the District of Columbia (featuring "Washington’s City") was created by an army under the command of George Washington, with Jefferson and Madison as loyal lieutenants.
By the Fall of 1790, Jefferson advised Washington to start construction as soon as possible, arguing that once government buildings were completed, Philadelphia would have no more cards to play. Interestingly, during that same fall, a joint resolution was passed in the Virginia Assembly that denounced assumption, and even featured language that strongly hinted at secession. During the Constitutional Convention, Hamilton predicted that the nation would endure only if the national government forced the states into a subservient status, and by the Fall of 1790, Hamilton’s prediction seemed to have merit.
By selecting the Potomac, the nation had decided to split its political capital from its economic capital (NYC), which was a departure from the European norm. So the main focus of Jefferson’s dinner party should not be on assumption, but rather more on the Potomac. That dinner party in June 1790 also signaled the resumption of the Jefferson/Madison partnership which had been on hold for five years, so the “Great Collaboration” by 1790 was an alliance worthy of its lofty label.
Jefferson and Madison may have shared Virginia’s dominant view that Hamilton was trying to take down the state, but in 1790 they did not share in the secessionist sentiments. The strategy of Jefferson and Madison was that they were not going to abandon the federal government but to capture it, gambling that the new capital on the Potomac would become an extension of Virginia. In the following decade as the leaders of the Republicans and then as President/Secretary of State, Jefferson would be the visionary leader and Madison would be the detail man in the trenches.