It is only fitting that the Republicans are meeting in New York this week in order to send their candidate back to Washington, D.C. The two cities’ histories are entwined – as often in conflict as they are in alliance. For more than two centuries, the two cities have maintained strong connections, mostly because New York has money and Washington needs it. The Treasury Department is in Washington, but it borrows money in New York because New York has the main money markets and primary dealers in government securities.

This connection is no coincidence. Indeed, the very idea of Washington D.C. was hatched in New York, at Thomas Jefferson’s house at 57 Maiden Lane, and made reality through a deal devised by Jefferson, James Madison, and New Yorker Alexander Hamilton. The deal that created a new capital on the banks of the Potomac was the same that made possible a strong Federal government and a powerful financial system, according to Hamilton’s plan. It determined the fate not just of those two cities but the entire nation for two centuries to come.

The year was 1790, and New York was the nation’s capital. Hamilton was Secretary of the Treasury in the new federal government; Jefferson the Secretary of State. Madison was a representative from Virginia to Congress, which met in a spruced-up old City Hall on Wall Street, the site of Federal Hall today. (It was there that George Washington took the oath of office as our first president in 1789.) Most New Yorkers wanted to keep the capital here. But Philadelphians also wanted the capital, as did Virginians such as President Washington, Jefferson, and Madison.

Hamilton did not much care where the nation’s capital was located. But he cared very much that the United States become one nation, rich and powerful, respected in the world, and capable of defending itself against the predations of European nations and empires. He had formed in his mind a comprehensive plan to make the federal government and the U.S. economy stronger by giving the country a modern financial system. Establishing the credit of the United States with lenders at home and abroad was the first order of business. That meant using federal tax revenues authorized by the Constitution to restructure, pay interest on, and ultimately redeem all unpaid national and state debts.

Congress had no trouble agreeing with Hamilton that it should service its own debts. Assuming the debts of states into the new national debt was another matter. Some states worried that they would have to pay the debts of others, who owed more. For Hamilton, federal assumption of state debts was absolutely crucial to his grand plan for a strong and unified nation. Each state had incurred debt in the common cause of American independence, and so those debts were obligations of the nation, not the individual states. Further, if deeply indebted states had tried to pay their debts by raising taxes, people might simply move to other states where taxes were lower. That was not the way to build a nation and hold it together.

Hamilton explained his position to Jefferson, and Jefferson acted to broker a political bargain that resolved the problem. Over dinner, he and Madison agreed to arrange sufficient vote switches in Virginia’s congressional delegation to enact Hamilton’s plan. In return, Hamilton would arrange with his allies in Congress to vote for moving the nation’s capital to a new federal city to be built on the banks of the Potomac, near President Washington’s home at Mt. Vernon. (Since it would take time to lay out a new federal city and construct public buildings, the capital would move in 1790 from New York to Philadelphia for 10 years, a side bargain that attracted the support of Pennsylvanians for the main bargain.)

The compromise of 1790 ended Hamilton’s involvement with Washington, D.C., although he went on to do a lot more to launch the federal government that moved there in 1800. And it is only the beginning of the tale of Washington’s relationship with New York.

Snatching victory from the jaws of defeat on state debt assumption, Hamilton moved quickly. Debt holders began to exchange unpaid old debts for new Treasury bonds starting in fall 1790,and the Treasury began paying interest on the restructured national debt in 1791. The new Treasury bonds rose quickly toward par, and securities markets in Boston, Philadelphia, and New York arose to trade them.

Hamilton next proposed a national bank. In December 1790, he asked Congress to charter a Bank of the United States. Congress did that early in 1791. The new federal banking corporation, owned by private investors and the government, had its initial public offering of shares in July and opened for business in December. The national bank had its home office in Philadelphia, the temporary capital, and opened branches in New York, Boston, Baltimore, and other cities.

By 1792, trading in Treasury bonds and corporate stocks had become so active in New York that in May a number of brokers met under a Buttonwood tree on Wall Street to bring more organization to the markets. They did so by founding what later became the New York Stock Exchange. At that time, the exchange listed five securities, and all five were Hamilton’s creations: shares of the Bank of New York, which Hamilton had helped found in 1784; shares of the Bank of the United States; and the three federal bonds Hamilton’s Treasury issued in late 1790.

The last element of Hamilton’s grand financial plan was a new national monetary unit. The U.S. dollar defined in terms of gold and silver came as a recommendation in his Mint Report of 1791.Congress adopted Hamilton’s recommendation and established the US mint a year later. Banks issued paper currency convertible into the monetary base of gold and silver coins, and they offered deposit accounts with money transfers by check. This gave the United States an expandable yet safe money supply to accommodate the country’s economic growth.

It was too much for Thomas Jefferson. Although he had helped Hamilton launch his grand plan, Jefferson disliked banks, securities speculators, commercial activity, and cities. As he witnessed all of these proliferate, Jefferson felt that Hamilton had duped him in the 1790 deal to move the capital to the Potomac. The breakdown of cordial relations between the two founding fathers in the early 1790s marked the beginning of our two-party system of politics.

Yet by 1801, when the new government’s first peaceful transfer of power took place, and Jefferson trekked through the muddy streets of the new capital to take the place of John Adams as President, the United States had all the key elements of a modern financial system: strong public finances and public debt management, a reliable national dollar currency, a banking system, a central bank, a corporate enterprise system, and flourishing stock and bond markets to price and trade all the new public and private securities issues.

And Jefferson’s bond-financed purchase of the Louisiana Territory two years later would have been impossible without the fiscal systems set in place by Hamilton.

As Washington, D.C., went from an idea hatched in New York to become the nation’s political capital, New York went from being its political capital to become its commercial, financial, and cultural capital. The current Federal Hall on Wall Street was once the Sub-Treasury that collected the lion’s share of federal revenue from customs duties. Customs collection in New York later moved to the imposing Alexander Hamilton Customs House on nearby Bowling Green – now a museum, among other things. The Federal Reserve System, the modern-day successor to Hamilton’s Bank of the United States, has its headquarters in Washington. But it executes U.S. monetary policy through the Federal Reserve Bank of New York because New York is where financial markets are the deepest and most liquid.

Despite Jefferson’s misgivings, Hamilton’s financial system energized the U.S. economy and made the young nation a stronger one. The magnitude of Hamilton’s financial achievement has until recently remained relatively unsung by historians. They may not have understood the crucial role of finance in a modern economy. Or perhaps they assumed that because a modern financial system was present in U.S. history from the beginning, it was something so natural that it hardly required comment. In truth, the United States was one of only two or three countries in the world that had such a highly developed financial system by the end of the 18th century. That it did was largely the work of Alexander Hamilton.