Abstract: Federal Capital Building: Construction Financing in Washington City, 1790-1802

Dana Stefanelli

Abstract

In this paper I examine the early U.S. government's role in economic development by studying the founding and construction of Washington, D.C. Building the Potomac seat of government posed significant challenges for federal leaders. America's economic circumstances—diffuse capital, costly labor, and poor transportation—made federal funding critical to the project's success, but political opposition blocked Congressional financial support. In order to circumvent these obstacles, federal officials partnered with state governments, landowners, and merchants to raise private capital via land sales to construct the public buildings. Several wealthy speculators purchased city lots, and local moneymen invested heavily in the city and its real estate market both individually and through the Bank of Columbia, but sales ultimately failed to cover costs. In the wake of this shortfall, the web of obligations and influence created by the financing plan convinced Congress to guarantee Federal City borrowing. By underwriting investment risk to mobilize capital for internal improvement, Congress set a precedent that defined the federal government's role in economic development.