In the course of writing For Want of a Nail, Sobel mostly skipped events between the end of the Trans-Oceanic War in 1799 and Jefferson's entry into the Mexican Civil War in 1815. Since this is pretty much the formative years of the independent State of Jefferson, I've decided that Scorpions in a Bottle is going to have an entire chapter devoted to this period. Below is the first half of Chapter 8: "The State of Jefferson."
* * *
Once the Jeffersonians completed the conquest of Tejas and northern Coahuila in 1798, all thoughts turned to Mexico City, and the expectation that Viceroy de la Grúa would respond to the Jeffersonian uprising by sending a Spanish army north. The Jeffersonians prepared as best they could, sending a delegation to the Comanche seeking an alliance against the Spanish, and fortifying the roads to Mexico City and Santa Fe. Hamilton even sent Monroe to Norfolk as an unofficial emissary to Bland, seeking help from the North Americans. By then, however, word of Major Jackson’s arrogant interview with Cornwallis and Curtis had reached the capitals of the C.N.A., and popular feeling against the Jeffersonians was at an all-time high there. 
It was against the backdrop of this anxiety concerning a Spanish counterattack that the Senatorial campaign of 1798 took place. Under the Lafayette Constitution, the terms of the fifteen-member Senate and the three-member Governate expired in January 1799. One of the oddities of the Jeffersonian constitution was that the two-year terms of the Chamber of Representatives were out of synch with the five-year terms of the senators and governors. As a result, the next class of senators would be chosen by the Chamber elected in 1797.
In the months before their terms expired, some of the senators began quietly canvassing members of the Chamber in hopes of securing enough votes to secure their reappointment. Rumors soon spread among the population of Jefferson of vote-buying within the legislature. The result was a wave of popular anger, not just against individual senators, but against the Senate as an institution. A statewide convention was soon organized with the goal of amending the Lafayette Constitution to abolish the Senate. In the course of the convention, which met in late September 1798, a faction appeared led by William Sayre and Samuel Curtis calling itself the Liberty Party that called for the direct election of the governors. When word reached General Hamilton, he sent a letter to the convention arguing that giving the governors an independent mandate would upset the balance of powers between the executive and legislative branches, increasing the risk of executive tyranny. Hamilton’s prestige was at its height at the time, and the convention chose to accept his counsel. The Senate’s power to choose the governors was transferred to the Chamber of Representatives. 
When the Chamber met in January 1799, Hamilton was offered another term as governor, but declined, stating that he preferred to remain at the head of the army while war with the Spanish continued. Johnston also declined a second term due to his declining health. Thus, Madison and Rush continued in office, while Monroe was elevated to replace Johnston.
When word of August Ferdinand’s elevation to the Spanish throne reached Jefferson City in the summer of 1799, Monroe presciently remarked, “Jenkinson thinks he has won Spain, but he has lost America.”  Events soon proved Monroe correct: by summer’s end, word came of Revillagigedo’s anti-royalist revolt in Mexico City, as well as others in Cuba, Santo Domingo, and Porto Rico. The threat of retaliation from Mexico City receded, and the leaders of the new state began the work of securing its independence.
The three governors appointed the late John Adams’ son John Quincy Adams Secretary of State, a frustrating office since no other nation was willing to recognize Jefferson as an independent state: Jenkinson’s government was opposed to any independence movements in Spanish America now that Spain had a friendly government; Louis XVII was firmly under the thumb of the Anglo-German alliance;  and the other revolutionary governments in Spanish America refused to recognize Jefferson for fear of antagonizing Revillagigedo.
The outbreak of the Mexican War of Independence led Hamilton to resign as commander of the Jeffersonian army. He then accepted the office of Secretary of the Exchequer, and set about putting Jefferson’s finances on a sound basis. Hamilton’s initial efforts to obtain a loan from a foreign government ran into the same difficulties as Adams’: no foreign government was willing to loan money to a state that lacked international recognition.
The salvation of the new nation’s finances came from a North American invention: the cotton gin. By mechanizing the process of separating cotton fibers from their seeds, the cotton gin removed a bottleneck in cotton production that resulted in a fifty-fold increase in cotton produced. A Northern Confederation inventor named Eli Whitney built the first cotton gin in 1793, and copies were soon found throughout the Southern Confederation and Jefferson. The outbreak of the Trans-Oceanic War delayed the growth of cotton production, but with the coming of peace in 1799 cotton production in Jefferson boomed.
The surge in cotton production brought with it a surge in demand for Negro slaves to cultivate it. This aroused the ire of the Liberty Party, who regarded slavery as antithetical to the ideals of the Rebellion. They called for the abolition of slavery, the repatriation of the freed slaves to Africa, and the transformation of Jefferson into the utopian republic of white yeoman farmers envisioned by Thomas Jefferson himself. 
While Hamilton himself disliked slavery, he believed that the new state needed the revenue that the cotton boom was bringing in, and slavery was a necessary component of the cotton boom. Jeffersonian ships were soon a common sight in Caribbean ports, their masters bidding fiercely on newly-arrived West African slaves. As the boom continued, the ships ventured across the Atlantic to the slave depots of Whydah and Lagos, purchasing slaves to be transported directly to Henrytown.
Hamilton himself articulated an alternative to the Libertarians’ agrarian utopianism. As the Mexican War of Independence unfolded, and New Spain descended into a maelstrom of violence and chaos, Hamilton came to believe that the Jeffersonians had a duty, a “continental destiny” as he put it, to take control of the country and guide it toward economic prosperity (including slave-based cotton cultivation) and orderly government. Hamilton’s Continental Destiny ideology attracted a large following in Jefferson, including many members of the government. 
As the 1803 elections approached, Hamilton’s followers organized themselves into a party in opposition to the Libertarians, calling themselves the Continentalists. Governors Madison and Rush tended to sympathize with the Libertarians, and by the summer of 1803 both groups had put forward slates of candidates for the Chamber of Representatives, and nominees for the Governate. Monroe broke with his former mentor Madison and joined Hamilton and John Gaillard as a Continentalist nominee for the Governate. Madison and Rush chose Sayre to replace Monroe in their own Libertarian ticket. On election day, October 5, the Continentalist candidates won 44 out of 58 seats in the Chamber, and at their first session on Monday, December 19, voted for the Hamilton-Monroe-Gaillard ticket for the Governate. 
1. Bruce. The Life of Governor Theodorick Bland of Virginia, pp. 410-412.
2. David Christman. The Origins of Political Parties in Jefferson (Mexico City, 1960), pp. 44-53.
3. Alexander Hamilton. Memoirs (Jefferson City, 1814), II, pp. 119-20.
4. After the signing of the Treaty of Aix-la-Chapelle, King Frederick William III of Prussia, with Jenkinson’s encouragement, created a political union among the victorious allied German states called the Germanic Confederation. This left the Holy Roman Empire in an untenable position, leading Francis II to dissolve it and proclaim himself Emperor of Austria.
5. Peter Collins. The Liberty Party in Old Jefferson (Mexico City, 1954).
6. Christman. The Origins of Political Parties in Jefferson, pp. 107-15.
7. Henry Cisneros. The 1803 Elections and the Rise of Partisanship (Jefferson City, 2009).