Final answer:
Alexander Hamilton agreed to move the nation's capital in exchange for Southern support to help pay the Revolutionary War debts, leading to the Compromise of 1790. This compromise involved the Assumption Bill and the Residence Bill, facilitating the government's assumption of state debts and the eventual establishment of Washington D.C. as the capital.
Step-by-step explanation:
Alexander Hamilton agreed to move the nation's capital from New York to a more southern location along the Potomac River to gain the South's agreement to help pay the North's Revolutionary War debts.
This arrangement was part of a political strategy known as the Compromise of 1790, which involved a crucial meeting between Hamilton, Madison, and Jefferson.
The compromise allowed the federal government to assume the state debts through the Assumption Bill, while the Residence Bill stipulated the capital would move to Philadelphia for ten years during the construction of the new federal city in the District of Columbia. Southern states like South Carolina, which had large debts, supported Hamilton's financial plans, while states with less debt, such as North Carolina, were opposed.
The compromise ultimately divided the nation's leaders, with factions forming over the debate of public credit. Jefferson and Madison envisioned the government more as an umpire, mediated by the tensions between the states, whereas Washington and Hamilton saw the federal government as an active player in the fiscal matters of the states.
The agreement to move the capital closer to the South was also intended to curb the power of the northern financial elite by separating political and financial interests.