The Treasury Department was not created until September 1789, and the first federal revenue had yet to come in. Today’s policymakers who disregard political realities are doomed to be ineffective.Ībout 18 months before that historic dinner, when George Washington was elected as the nation’s first president, the federal government was bankrupt. As this most famous dinner shows, political negotiation can help overcome apparently insurmountable obstacles and become a force for institutional transformation. Public finance reform is fundamentally political, and it has the potential to shape the political system itself.
The episode remains relevant because it shows that politics plays a crucial role in far-reaching reforms of public finances. The deal is an early and vivid example of how fiscal politics can shape history. Madison agreed to have the US federal government take over the states’ Revolutionary War debt in return, Hamilton agreed to support the move of the nation’s capital to the banks of the Potomac River, a location favorable to Madison’s home state of Virginia. Over a long dinner, the three struck a historic deal that laid the financial groundwork for the fledgling nation. On the evening of June 20, 1790, James Madison and Alexander Hamilton met at Thomas Jefferson’s home on Maiden Lane, in New York. A historic meeting laid the foundations of US finances
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