The candles were already lit when Alexander Hamilton arrived at Thomas Jefferson’s townhouse on Maiden Lane in lower Manhattan. It was a warm evening in June of 1790, and the new republic was fifteen months old.
Jefferson had not originally planned to host this dinner. The day before, he had encountered Hamilton in the street outside President Washington’s office, and Hamilton had made an impression on him. He had looked, Jefferson would later recall, “dejected and haggard.”
America’s first Treasury Secretary had been locked in a losing battle in Congress for months… and it showed. Jefferson, moved by what he saw, invited Hamilton to dine with him the following evening. He also sent an invitation to James Madison.
Jefferson had been back in America for barely six months, having spent the previous five years in Paris as minister to France. He was excited to be home and engage directly in the prospects of building his “empire of liberty”.
In his time abroad, Jefferson had watched the French Revolution begin from the windows of the Hôtel de Langeac, where he stayed. He had dined with Lafayette… and at first he was optimistic. But then he saw what happened when a nation’s finances fell into the hands of men who understood leverage better than liberty.
Now Jefferson was Secretary of State in a government that was tearing itself apart over a question most Americans couldn’t articulate, but all of them could feel: who would control the money?
Hamilton was eager to get to it. He had accepted Jefferson’s dinner invitation with considerable purpose, because he needed something from Jefferson that he could not obtain himself on the floor of Congress. That is, Hamilton was pushing a debt assumption bill.
Congress had been deadlocked on it for months. The Southern states, led by Virginia, had largely paid their Revolutionary War debts already. They saw no reason to subsidize Massachusetts and the other states that had not. But the Northern states, still buried under wartime obligations, saw debt assumption as a matter of survival.
The fight had become vicious enough that serious men were beginning to talk about the union dissolving before it had properly begun. That was the impetus underlying this Manhattan dinner meeting.
Hamilton had a solution. He always had a solution.
To Hamilton, the obvious answer was for the federal government to absorb all the Revolutionary War debts that individual states still carried — roughly $25 million in obligations scattered across thirteen legislatures in thirteen different currencies with thirteen different levels of willingness to pay.
The challenge was that this sum vastly dwarfed the fledgling American republic’s $4 million in annual revenue.
As he took his seat at Jefferson’s table, Hamilton turned over the problem in his mind. How could he explain his reasoning in a manner that Jefferson would understand and support?
A knock at the door interrupted his thoughts. James Madison had accepted the dinner invitation also, and Jefferson promptly welcomed him as well.
Hamilton knew that Madison was Jefferson’s closest political ally. He was the man who had drafted the Constitution, and he had been Hamilton’s most formidable opponent in Congress over the debt assumption bill.
Thus, Hamilton knew that if he could get both Jefferson and Madison on board with his plan, everything else would take care of itself.
So it was that these three legendary men sat down for dinner in a Manhattan townhouse in 1790 to discuss the future of American finance.
Hamilton knew that any debt assumption plan would have to compensate Virginia, and to a lesser extent, the Southern states that had already satisfied their war debts. With that in mind, what he proposed to Jefferson and Madison over dinner was deceptively simple.
Per Hamilton’s plan, the nation’s capital would be centered in Virginia, on the banks of the Potomac River. That’s a prize that Jefferson and Madison had wanted for years, and it would serve as a symbolic anchor for Southern political power.
In exchange, Hamilton asked Madison to stop blocking the assumption bill in Congress, and he asked Jefferson to use his influence to deliver the necessary votes.
After a brief back-and-forth, both men agreed.
Men of their word, Jefferson and Madison delivered upon their promise and Hamilton got his debt assumption plan through Congress. The significance of this was not apparent at first… but it changed everything.
Jefferson later came to regret his decision – not because the deal was corrupt, but because it set the foundation for America to become an urbanized industrial power rather than the agrarian empire of liberty that Jefferson envisioned.
By assuming the state debts and consolidating them into federal bonds, Hamilton created the first functioning American capital market. European investors, particularly the Dutch banking houses that had funded the Revolution, could now buy standardized, tradeable American securities.
It wasn’t long before capital began flowing into the country. In fact, the Treasury bonds became a form of currency. Then the Bank of the United States, which Hamilton chartered the following year, became the institution through which that capital was directed toward the productive development of the new nation.
Jefferson was horrified. To him, Hamilton was laying the foundation that would make America susceptible to all the corruption he had witnessed in Europe. And with every advance Hamilton made, Jefferson knew his dream of an agrarian society was fading.
To Hamilton, the course he had set for the fledgling republic was the only one that would give it a chance to achieve true economic sovereignty as an independent nation. He saw industrialization as the key to economic independence, and he saw economic independence as the key to national sovereignty.
Today, we tend to play up the political rivalry between Hamilton and Jefferson. And by so doing, we miss the nuance.
The reality is that both men were trying to protect the American republic from the same threat. They had both seen, from different vantage points, what the British Empire’s financial system did to nations that fell within its orbit.
Jefferson had watched it destroy the independence of Virginia’s planter class. He knew well the men who owned vast Virginia estates but were perpetually in debt to London merchants, who set the price of tobacco in international markets and then extended the credit that the plantations needed to keep running.
And Jefferson understood well that a man who owes his livelihood to a creditor is not free, regardless of how many acres he owns.
Hamilton had seen the same system from a different angle.
During the Revolution, Hamilton had served as General George Washington’s aide-de-camp, handling the correspondence of an army that could not feed its troops adequately. It didn’t take long for Hamilton to realize that this wasn’t due to a lack of food production – America’s farms produced plenty of food. Instead, it was due to the lack of a unified system of credit.
The Continental Congress printed currency with no collateral backing, and everyone knew it was only a matter of time before it would become worthless. As such, nobody would lend against the currency to extend the Continental Army the funds it needed.
As a result, many soldiers went unpaid. Some even turned, like Benedict Arnold.
Hamilton watched the Revolution nearly fail due to a lack of funding. That’s when he drew a conclusion that he never abandoned: a republic that cannot finance itself will not be a republic for long… because it will be effectively colonized by whoever controls the flow of credit. In those days, that was Britain.
So Jefferson’s answer to the British threat was independence through simplicity. He envisioned an America of self-sufficient farmers who needed no banks because they owed no debts. And he believed that would create individuals who could not be coerced or corrupted because they depended on no creditor.
It was a beautiful vision. And in 1790, with ninety percent of Americans living on farms, it was not an unreasonable one.
Hamilton had a different vision. He saw an America so industrially and financially powerful that no foreign system could subordinate it. Independence through strength was his solution.
To achieve his vision, Hamilton pushed for a national banking system, tariffs, incentives for manufacturers, a funded national debt, and a professional military. To Hamilton, these were the tools necessary for national sovereignty.
Jefferson feared that Hamilton’s tools would become instruments of exactly the kind of financial tyranny he had spent his life opposing. And he was right to fear it. They eventually did… but not because America was overcome externally. More on that in future essays.
At the same time, Hamilton feared that Jefferson’s vision would leave America defenseless against a British Empire that did not need muskets to recolonize a nation of farmers. He was right to fear that too. Without Hamilton’s financial architecture, the republic was one bad harvest away from being reabsorbed into the British economic orbit.
While history strips out the nuances, the reality is that both Hamilton and Jefferson were right — about different things, on different time horizons, with different vulnerabilities.
And the forces that would eventually capture the American financial system and turn it toward extraction rather than production understood something that neither Hamilton nor Jefferson fully grasped as they sat in that Manhattan townhouse in the summer of 1790. And that was – the gap between their two visions was the opening through which the hidden conquest would later come.
Though history glosses over it, the gap between Hamilton and Jefferson has defined American economic history for its entire 250 years. It was never bridged.
Perhaps ironically, both men opposed the British Empire’s system of financial extraction. But they each had very different ideas for how to combat it.
Now, we don’t know if Jefferson’s vision would have succeeded. It was never tried. But the historical record clearly shows that Hamilton’s American System did work, and it worked quite well. The proof is in what America became.
In the decades following that Manhattan dinner, the United States grew from a fragile agricultural republic clinging to the Atlantic coast into the most powerful industrial nation the world had ever seen.
By the 1890s, American steel production surpassed Britain’s. American railroads connected a continent. Goods manufactured in America were competing with, and displacing, British products in markets around the world.
But even with its achievements, the American System stood in sharp contrast to Britain’s Global Financial Extraction system.
And while Hamilton’s legacy enjoyed decades of success, those who controlled the extraction system never gave up. Later in American history, they found their opening and they took it quietly… from the inside.
This is the story I’d like to tell you in our ongoing essay series.
While the textbooks tell us that America won its independence through the Revolutionary War, that’s only partially true. America did win the ability to form its own national government, and that government became recognized as independent.
However, the forces controlling the system that built the British Empire never gave up on their ambition to reabsorb the former colonies – not nominally, but economically. That’s the unspoken 250-year economic war that’s been raging since the American founding.
It’s not a war of nation vs. nation, which is something we can see and easily understand. Instead, it’s a war of system vs. system – the American System versus the Global Financial Extraction System that originated in Britain.
To my knowledge, this story was largely lost to history. It hasn’t been taught or widely discussed for over a century.
But if we examine history carefully, we can see that this war has been running, to some capacity and in plain sight, since America’s founding. And it accelerated after that 1790 evening in Manhattan when three American legends sat down to dinner and agreed to lay the foundations of the American System.
More to come…
-Joe Withrow
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