You probably know that the “D.C.” in Washington, D.C., stands for “District of Columbia” and that the district is not part of any state. But do you know why America’s Founding Fathers placed such importance on creating a capital outside of any state? We owe it all to piles of unpaid bills.

EVOLUTION OF THE REVOLUTION

In April 1783, the U.S. Congress (then known as the Continental Congress) gave preliminary approval to the Treaty of Paris, which, if ratified by both England and the United States, would end the Revolutionary War after eight long years of fighting. Final ratification was still a year off, but it was clear that the war was all but over and that the American colonies had won. That was good news for the colonies…but not necessarily for the soldiers who’d done the fighting, because it wasn’t clear that they would ever be paid for their years of service and sacrifice.

The Congress had run up huge debts to finance the war effort, and it had no real means of paying back the money. The Articles of Confederation, which served as the American constitution from 1781 until it was replaced by the U.S. Constitution in 1788, gave Congress the power to declare war and the power to raise an army to fight it. But it didn’t give Congress the power to levy taxes. Without this power, it had no way to raise the money it needed to pay its war debts. The Congress could ask the states to contribute, but it couldn’t compel them to do it. The states had run up huge war debts of their own that had to be repaid.

BEG, BORROW, STEAL

Many soldiers had been paid with IOUs or not at all. Their material needs had often gone unmet as well. During the winter of 1777, for example, nearly a quarter of the 10,000 soldiers camped at Valley Forge died there—not from combat, but from malnutrition, exposure, and disease. “We have this day no less than 2,873 men in camp unfit for duty because they are barefooted and otherwise naked,” General George Washington complained in a letter two days before Christmas in 1777.

FREE…FOR NOW

Soldiers with the means to do so had supported themselves during the war, and when their money ran out, they had amassed debts of their own. Now, having shed their blood to secure America’s liberty, they faced the prospect of losing their own liberty in debtors’ prison as soon as they were discharged from the army. “We have borne all that men can bear,” one group of soldiers wrote in a petition to Congress in early 1783, “our property is expended, our private resources are at an end.”

In response to this and other demands for payment from the soldiers, Congress could offer only vague promises to make good on its obligations to pay them…someday.

ON THE MOVE

On June 19, 1783, a group of about 80 unpaid soldiers stationed in Lancaster, Pennsylvania, mutinied and began marching the 60 miles to Philadelphia, then the nation’s capital, to demand payment from Congress in person. As they made their way toward the city, more troops abandoned their posts and joined the march. The congressmen, meeting at the State House (known today as Independence Hall), feared that if the soldiers made it to Philadelphia they’d join forces with soldiers stationed in the city. The mutiny might then be large enough to overthrow the government, ending America’s democratic experiment just as it was beginning.

Congress had no troops of its own to call on for protection. When the war ended, the Continental Army had disbanded, and command of the soldiers had reverted to the states, each of which had its own militia. Alexander Hamilton, then a congressman from New York, appealed to Pennsylvania’s ruling body, the Supreme Executive Council, to dispatch the state militia to protect Congress, but the council refused to do so. Unless and until the soldiers became violent, Congress would have to fend for itself.

By then, of course, it would probably be too late.

OVER THE LINE

Having been rebuffed by the Supreme Executive Council, Hamilton dispatched the assistant secretary of war, Major William Jackson, to meet with the soldiers at the city limits and hopefully turn them back. No such luck—the soldiers marched right past Jackson and, as feared, made common cause with troops stationed in the city. The mob, now numbering some 400 angry (and, thanks to the generosity of sympathetic tavern keepers, drunken) men, raided several arsenals and seized the weapons inside. Then it marched on the State House and surrounded it while Congress was meeting inside.

STANDOFF

The mutineers delivered a petition to Congress stating their demands and threatening that if they were not met within 20 minutes, the “enraged soldiery” would take matters into their own hands. As volatile as the situation was, Congress refused to submit to the soldiers’ demands, nor would it agree to negotiate with the mob or even adjourn for the day. Instead, it continued with its ordinary business for another three hours, then adjourned at the usual time and left the building to the taunts and jeers of the soldiers outside.

That evening Congress reassembled at the home of Elias Boudinot, the president of Congress. There it passed a resolution condemning the mutineers and demanding that Pennsylvania’s Supreme Executive Council order the state militia to disperse the mob. If the Council refused, the Congress warned, it would leave the state and assemble in either Trenton or Princeton, New Jersey. And if Pennsylvania refused to guarantee the security of the congressmen in the future, it would never meet in the city again.

TIME TO GO

The next morning Alexander Hamilton and another congressman, Oliver Ellsworth, delivered the resolution to the president of the Supreme Executive Council, John Dickinson, in person. But Dickinson sympathized with the unpaid troops, and he feared that the Pennsylvania militia—also comprised of Revolutionary War veterans—would refuse to fire upon their brothers in arms if commanded to do so. Dickinson declined to take action.

With no help coming from the state government, Congress made good on its threat and evacuated to Princeton. It remained there for just a month before moving to Annapolis, Maryland. A year later, in 1785, it moved to New York City. It was still there in June 1788, when the U.S. Constitution replaced the Articles of Confederation. The new constitution gave Congress the power to levy taxes, which finally made it possible to pay its bills.

STAND DOWN

By then, of course, the mutiny was long over. Pennsylvania’s Supreme Executive Council eventually did call up the state militia to disperse the mutineers, and as soon as the soldiers received word that the militia was on its way, they laid down their arms and returned to their bases. They never fired a shot or killed a single person in anger, which is one of the reasons the “Pennsylvania Mutiny of 1783” is largely forgotten today.

But the mutiny did have a big impact on American history, because the congressmen who found themselves surrounded by an armed, angry (and drunken) mob with no one coming to their aid were determined that the fledgling democracy would never face such a threat again. “The Philadelphia mutiny…gave rise to the notion that the national capital should be housed in a special federal district where it would never stand at the mercy of state governments,” author Ron Chernow writes in his biography of Alexander Hamilton. When delegates met in 1787 (in Pennsylvania’s State House, ironically) to draft the new constitution, they inserted in Article 1, Section 8, of the U.S. Constitution a paragraph giving Congress the power “…to exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of Particular States, and the Acceptance of Congress, become the Seat of the Government of the United States.”

DETAILS, DETAILS, DETAILS

The U.S. Constitution did not, however, say where the capital city should be located or even require that one be established. All it said was that such a city could be created, and if it was, that Congress would exercise exclusive control over it, including providing for its security. Whether such a city would be built—and if so, where—would be the subject of battles to come.

SITE FIGHT

The U.S. Constitution did not require that a new federal city be built from scratch. All it said was that Congress, if it wanted to, could create a federal district “not exceeding ten miles square” (a site ten miles wide and ten miles long, for a total of 100 square miles) where it would have exclusive jurisdiction. The simplest and cheapest solution would have been to designate a portion of an existing city, such as Philadelphia, Boston, or New York, as the federal district, and for the city and state in question to cede jurisdiction to Congress.

More than one city recognized the financial and other benefits that would accrue from providing the site for the new national capital. Philadelphia, then the country’s largest city, was an obvious choice. The Continental Congress had met there during the war, and both the Declaration of Independence and the U.S. Constitution had been signed in the State House (Independence Hall). And though Congress had vowed never to return to the city after the Pennsylvania Mutiny of 1783, the Pennsylvania delegation was eager to forgive and forget. New York City had served as the nation’s capital since 1785, and prominent New Yorkers like Alexander Hamilton, now the secretary of the treasury, wanted it to be named the permanent national capital.

DOWN UNDER

So why did neither city get the nod? Because Southern states didn’t like the idea of any established urban center, let alone one in the North, serving as the national capital. The rural, agrarian South was suspicious of big cities and the merchants, bankers, manufacturers, stockbrokers, and other sharpies who lived there.

Southern states were also determined to preserve the institution of slavery, which was on its way out in the North. Congressional delegations from the South feared that if the capital was located in a Northern city, slavery would be under constant attack. Southern congressmen also worried that if they brought their slaves to live with them in New York or Philadelphia while Congress was in session, the presence of large numbers of abolitionists and freed slaves in these cities would make it easy for the slaves to escape. (George Washington had the same fear; it was realized in 1796 when a female slave named Oney Judge escaped from the presidential household and never returned.)

IN THE HOLE

As the United States debated where to put the capital city, it also wrestled with a much more daunting challenge: the country’s staggering Revolutionary War debts. Thanks to the ratification of the Constitution in 1788, Congress now had the power to tax, which gave it the ability to generate revenue to pay down the debt. It was certainly going to need it. The nation was nearly bankrupt. In 1790 the federal government’s war debt stood at $54 million (the equivalent of around $1.2 billion today) at a time when the population of the United States was fewer than four million people. Individual states had also piled up millions of dollars in debt, more than $25 million of it still outstanding.

How to repay all that money—and indeed whether to repay it at all—was the subject of much debate. Many Americans felt a stronger allegiance to their home states than they did to the new union; they would have cared little if the national government defaulted on its debts. Some states had already reneged on their obligations. New York stopped making interest payments on its bonds in order to drive down their market value, then bought them back for a song to avoid paying back the money in full.

FORTUNE OF SOLDIERS

Complicating the issue were the thousands of IOUs that had been issued to Revolutionary War soldiers in lieu of their pay. Many soldiers, either out of desperation or simply in despair that they would ever be paid, had sold their IOUs to speculators for pennies on the dollar. If the IOUs were paid off now, the speculators, not the soldiers, would benefit. So why not default on the IOUs and find some other way to pay the soldiers directly?

CREDIT HISTORY

Alexander Hamilton, the New York congressman whom George Washington appointed secretary of the treasury in 1789, felt otherwise. He believed that if the young country was going to develop, it would need access to capital and plenty of it. If it wanted to borrow the money at favorable interest rates, it needed to demonstrate to lenders that it would always honor its debts.

The treasury secretary drew inspiration from the British, who had built the Royal Navy with borrowed money and then used the navy to extend the British Empire to every corner of the globe. England’s reputation for honoring its debts was unquestioned; the government’s bonds were considered as good as cash. People could even use them as collateral for loans, which injected even more money into the British economy.

ALL FOR ONE, ONE FOR ALL

Hamilton believed it was important for the federal government to assume responsibility not only for its own debts but also those of the states, and to consolidate them all into a single, giant pool of war debts that would be repaid in full. Since everyone had benefited from the Revolution, he reasoned, everyone should pitch in to pay for it, not just the states that had done most of the fighting (and thus most of the borrowing).

In January 1790, Hamilton published his ideas in The First Report on the Public Credit, which he presented to Congress. His plan aroused strong opposition from the start; some states, like Virginia and North Carolina, had already paid most of their war debts, and they balked at having to pay a second time to settle the debts of other states, like Massachusetts and South Carolina. And nobody relished the idea of enriching speculators at the expense of destitute Revolutionary War veterans.

Hamilton believed that making good on the IOUs, even those that had been sold to speculators, was a necessary evil. The only reason the IOUs had sold for a fraction of their value in the first place, he argued, was because people had assumed the government would never pay up. Demonstrating the government’s intent to honor its obligations would prevent those debts from ever selling for a fraction of their face value again, depriving future speculators the ability to profit from wild swings in their value. (Hamilton also had a grudging admiration for the speculators because they’d shown faith in the new government and risked their own money to buy the IOUs that so many people assumed were worthless. He believed they deserved to be rewarded for taking the risk.)

THANKS…BUT NO THANKS

As Hamilton’s debt-payment plan made its way through Congress in the early months of 1790, it lost some key preliminary votes, thanks to strong opposition from such luminaries as Secretary of State Thomas Jefferson and James Madison, then an influential member of Congress. Both men were from Virginia, an agrarian Southern state that was then the most populous in the Union.

Unlike Hamilton, Jefferson and Madison were not inspired by the British model of a worldwide empire ruled by a single government in London. They envisioned the United States as something more akin to what the European Union and the United Nations are today: a coalition of independent, sovereign states linked (when necessary) by a comparatively weak central government. Jefferson and Madison feared that Hamilton’s financial plan would strengthen the federal government at the expense of the states. They also sympathized with the Revolutionary War veterans and wanted to see that they, not the speculators, were paid in full.

DOUBLE TROUBLE

Either of the two great issues of the day—where to put the capital city and how to deal with the Revolutionary War debts—was divisive enough in its own right to dissolve the fragile new nation just as it was coming into being. So why didn’t it happen? Because as badly as Alexander Hamilton wanted to see New York or some other Northern city as the national capital, he wanted his debt-payment plan even more. And as much as Jefferson and Madison loathed Hamilton’s debt plan, they understood that America defaulting on its debts was even worse. They were willing to support Hamilton’s plan, but they had a price: They wanted the new capital city to be located somewhere in the rural South.

MEAL DEAL

That was the deal that was worked out at a famous dinner that Jefferson hosted for Hamilton and Madison at his home in New York in June 1790. There, Hamilton agreed that the capital city would be located somewhere along a 65-mile stretch of the Potomac River, on the border between Maryland and Virginia, with the exact site to be chosen later. In return, Jefferson and Madison agreed that Madison would round up the votes needed to get Hamilton’s debt-payment plan through Congress. To win the support of the Pennsylvania delegation, it was agreed that Philadelphia would serve as the temporary capital for ten years while the permanent capital was being built.

The bill placing the capital city on the Potomac was called the Residence Act; it passed both houses of Congress in early July 1790 and was signed by President George Washington on July 16. Hamilton’s debt plan was signed into law a few weeks later.

The Residence Act also specified that Washington would decide precisely where along the Potomac the federal city would be located. He selected a spot just 15 miles north of his estate at Mount Vernon. In 1791 the new city was named Washington in his honor, and the federal district in its entirety was named Columbia.

STAY (JUST A LITTLE BIT LONGER)

One of the reasons the Pennsylvania delegation was willing to vote for the plan in exchange for Philadelphia being named the “temporary” capital was that many Pennsylvanians assumed it wouldn’t be temporary. With so much money needed to pay the Revolutionary War debts, how much would be left over to build the new capital? Washington, D.C., was supposed to be completed by 1800…but what if construction fell behind? Pennsylvania officials were so certain that the new capital would never be finished that they began constructing their own buildings to house the federal government, including a house for the president, to entice the government into staying in Philadelphia for good.

And even though the state had been phasing out slavery for a decade via the Gradual Abolition Act of 1780, that law specifically exempted slaves owned by members of Congress from the law. That meant that congressmen from slave states could bring their slaves into Pennsylvania without fear of them winning their freedom under the law. (The slaves could still escape to freedom—and many did—but at least they had no means of obtaining their freedom through the legal system.)

PHILADELPHIA FREEDOM

The building of Washington, D.C., actually did fall behind, and there must have been plenty of times when it seemed like the project would end in failure. Who knows? Philadelphia might well have been named the permanent capital, were it not for one more problem: mosquitos. In August 1793, Philadelphia was hit by a yellow fever epidemic—its first in over 30 years and far worse than any that had come before. A tenth of the population died in just three months, and another two-thirds fled the city, leaving it a virtual ghost town.

George Washington decamped to Germantown, ten miles outside the city, and ran the executive branch from there for about a month until moving to Mount Vernon in September. He survived the epidemic, but four of his servants did not.

No one understood at the time that mosquitos were the carriers of yellow fever, but when the disease returned to Philadelphia in 1797, 1798, and 1799, people assumed that something had to be wrong with the city, perhaps the climate, or the air, or the water. Whatever it was, what little chance Philadelphia had for remaining the capital city was gone for good. When 1800 rolled around and Washington, D.C., still wasn’t completed, the federal government went ahead and moved there anyway.

It wasn’t perfect, but it was better than staying in Philadelphia.