How a historic meeting laid the foundations of US fiscal policy and choice of Washington as capital…

Interesting bit of history by Vitor Gaspar and David Amaglobeli of IMF.

On the evening of June 20, 1790, James Madison and Alexander Hamilton met at Thomas Jefferson’s home on Maiden Lane, in New York. Over a long dinner, the three struck a historic deal that laid the financial groundwork for the fledgling nation. 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. The deal is an early and vivid example of how fiscal politics can shape history. The episode remains relevant because it shows that politics plays a crucial role in far-reaching reforms of public finances. Public finance reform is fundamentally political, and it has the potential to shape the political system itself. As this most famous dinner shows, political negotiation can help overcome apparently insurmountable obstacles and become a force for institutional transformation. Today’s policymakers who disregard political realities are doomed to be ineffective.

The whole narrative is fascinating to read…

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