President Obama and congressional Republicans are still struggling to strike a deal on the debt ceiling that would keep the nation from default. It is difficult to foresee what final compromise they might reach — but it’s hard to imagine one more consequential than the bargain struck more than 200 years ago that ended another debt crisis while laying the foundation for our economic system. That fateful deal also ensured that Washington became a slave capital.

In 1790, the federal government and the states were nearly $80 million in the red, burdened by annual interest payments that were triple the nation’s income. A decade after the financially strapped United States madly raised funds for the Revolutionary War, the country was facing default. If the new nation failed to pay its debts, Treasury Secretary Alexander Hamilton feared, it would be shut out of world markets. Foreign governments and individual investors, worried that their loans would never be paid back, might refuse to invest in America. The young economy would be crippled.

To avoid economic collapse, Hamilton proposed a series of financial reforms, including “assumption,” or having the federal government assume the states’ debts and commit to paying their full value. A national debt, he argued, was “the price of liberty” — a free nation was not free to walk away from its financial obligations. Many members of Congress, particularly Virginia’s James Madison and other Southerners, vociferously objected. Opponents saw assumption as a sign of the growing power of the federal government and rejected Hamilton’s insistence that the Constitution’s “necessary and proper” clause allowed fiscal measures of such huge scope.

The issue produced what Secretary of State Thomas Jefferson called “the most bitter & angry contests ever known in Congress.” Opponents of assumption threatened secession, and they had enough votes to block the measure. Hamilton, a New Yorker, knew that Jefferson had substantial credibility with Madison and the Southerners, and he pleaded for help. Jefferson agreed to intervene, hatching a compromise that also addressed the other major political stalemate that bedeviled Congress that spring: where to put the nation’s capital.

The Constitution authorized Congress to create a federal district to serve as the national seat of government but did not specify its location. The city awarded this prize would enjoy prestige, power and economic growth. If built in the South, the capital would also be more likely to protect the bedrock of the Southern economy: slavery.

In 1790, about 20 percent of Americans were considered property. Though some Southern leaders felt uneasy about the institution — Jefferson, a slave-owner, fretted about its “unhappy influence” — few could imagine the South without slaves. As an international abolitionist movement gained steam in the late 18th century, many Southerners felt under siege and believed that a Southern capital would protect their interests. But they did not have the votes to put the capital in the South, while Hamilton, a founding member of the New-York Society for Promoting the Manumission of Slaves, did not have the votes to get his assumption plan through Congress.

Jefferson, hardly a disinterested observer, stepped in to broker a compromise. Over dinner at his rented Manhattan home in mid-June — historian Joseph Ellis called it “the most meaningful dinner party in American history” — Jefferson brought Hamilton and Madison together to hammer out an agreement. Madison agreed to lean on Southern representatives to support the assumption bill. In exchange, Hamilton would persuade his Northern allies to support a capital on the banks of the Potomac.

It was a deal with tremendous long-term consequences for the nation and for the future capital. The compromise secured America’s financial future as well as the constitutional doctrine of implied powers, strengthening the federal government at a critical time.

But the deal sealed the new city’s fate as a slave capital. Safely ensconced between two of the country’s largest slave states, Washington became a glaring contradiction — a citadel of freedom that nonetheless protected slavery and prospered from the burgeoning domestic slave trade. Thanks to the port of Alexandria, which remained part of the District until 1846, D.C. became the largest slave-trading city in the nation. Slaves here were an everyday part of life. They helped build the city, they lived in the White House, and they were sold on auction blocks downtown.

Fighting a war to preserve the Union from a slavery-friendly capital, President Abraham Lincoln tread cautiously lest he frighten Maryland into the arms of the Confederacy, resisting calls for D.C. emancipation until 1862 and allowing compensation to be paid to Washington slave-owners. For almost a century after the Civil War, D.C. remained distinctly Southern, with separate schools, neighborhoods and jobs for its black citizens. The city’s white leadership repeatedly rebuffed attempts to create an interracial democracy. Instead of representative self-government, D.C. was ruled by three invariably white commissioners appointed by the president, an arrangement that one commissioner in 1901 called “an ideal form of government because it is a government by the best citizens.”

Today, with the District losing its black majority, battles over gentrification, voting rights, school reform and even bike lanes show that racial tension remains embedded in Washington life. The grand bargain struck over Jefferson’s dinner table in 1790 came with a tremendous price.

Chris Myers Asch teaches history at the University of the District of Columbia.

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Chris Myers Asch explains how a debt deal in 1790
made D.C. a slavery capital