McCulloch v Maryland (1819)

     In 1818, Maryland passed a law imposing a tax on all non state chartered banks operating within the state of Maryland.  This included the Bank of the United States, which was chartered by Congress in 1816.  The Maryland law also required the Bank of the United States follow Maryland in its issuance of bank notes.

     James McCulloch, cashier of the Baltimore branch of the Bank of the United States, refused to comply, so Maryland filed suit.  This case has been characterized as one of the most influential cases in American history.

     John Marshall ruled that Congress could create and charter a national bank, although the Constitution never explicitly mentioned it.  Marshall ruled that Congress was permitted to "make all laws which shall be necessary and proper for carrying into execution" expressed or implied powers in the Constitution.

     Additionally, this case disallowed Maryland's taxation on the bank. By incorporating this national bank, Congress was only creating a means by which to attain goals from the powers allocated to it.

     Congress incorporated the Bank of the United States, and a branch was established in Baltimore.  Contrary to Maryland statute, McCulloch issued bank notes that were not in compliance.  Maryland filed suit to recover taxes and penalties.

     Two issues had to be resolved in this case.  First, did Congress have the power to incorporate a bank and secondly, did the State of Maryland have the right to tax an branch of the Bank of the United States located in Maryland?

    In the first question, John Marshall ruled that Congress did have the power to incorporate this bank.  The Constitution gives Congress right to lay and collect taxes, to borrow money, to regulate commerce, to declare and conduct war, and to raise and support the military. These powers are spelled out the Article I of the Constitution.  In addition, Congress has the power to may "make all laws which shall be necessary and proper" for executing the expressed and implied powers in the Constitution.  In incorporating a bank, Congress has created a means to attain the monetary duties entrusted to them.

    In the second question, John Marshall ruled that the Constitution and its provisions are supreme and cannot be controlled by the states.  Maryland could not pass legislation that regulated or superceded the laws of the Federal Government.  He stated "Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, and which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution, are constitutional."  By taxing the operations of the federal government's chartered bank, they were, in fact, taxing all of the people of the United States.  Maryland did not have jurisdiction to do this.  He contended that the power to tax implicates the power to destroy.  This type of tax could destroy establishments necessary to operate the federal government.  Marshall ruled that the tax was unconstitutional and therefore void.

    The decision in this case is deemed by many to be the greatest court opinion in jurisprudence.  However, this does not make it the best written.  Written in Marshall's later years, his sentence structure is difficult to follow, but his logic nevertheless emerges.  Marshall writes that the Constitution and our form of government must endure along with the emerging structure of our federal system.

    The Bank of the United States was the idea of Alexander Hamilton.  As a financial institution, the bank was extremely powerful, with participation in banking at all levels.  A strong federal institution was not to the liking of the Jeffersonians.  They believed that the states should control their own destinies and fiscal power, as well as their banks.  Thus the Bank of the United States died in 1811 as its charter was allowed to elapse.  State banks took care of the people's needs.

    Chaos and confusion followed since there were no state banking controls.  Fiscal bandits controlled the banks for their benefit.  As the banks issued massive numbers of notes, their values fluctuated uncontrollably. Banks closed overnight, causing financial panic.  To avoid financial collapse, Madison decided that there would have to be a Second Bank of the United States.  Congress passed legislation for its charter in 1816.

    The Second bank, however, was not skillfully managed.  Matters worsened as the bank patterned itself after the existing state banks.  There was wild speculation as notes from other banks were honored based on favoritism.  The public was totally dissatisfied, turned on the bank and many of its branches defaulted.

    Responsible financiers sought methods to drive the bank out of existence.  By 1819, nine states had devised laws preventing the bank from operating branches or conducting business inside their borders.  Maryland was one of those states, imposing a 2% tax United States Bank Notes.  This action drove these bank notes out of the state, as no one would accept them.  A ten dollar Maryland bank note had the face value of ten dollars, but the United States Bank Note was worth only nine dollars and eighty cents.

    James McCulloch, cashier of the Baltimore branch of the Bank of the United States refused to pay the state tax.  Suit was brought to collect the tax.  Argument in the Supreme Court over this case occurred during the financial panic and while the Congress was putting forth a resolution to abolish the bank.  The oral arguments continued for nine days, involving the greatest lawyers of the time.  The federal government was represented by Daniel Webster, William Wirt and William Pinkney.  Maryland's lawyers included Luther Martin, Joseph Hopkinson, and Walter Jones.  Pinkney argued for three days.  Marshall's decision was rendered only three days after the oral arguments concluded.  As Pinkney was considered the foremost legal advocate of his day, Marshall's opinion followed Pinkney's argument carefully.

     Marshall first addressed the constitutionality of Congress's authority to charter the bank.  His constitutional theory addressed the "necessary and proper" clause in the Constitution, defining "necessary" as meaning only "appropriate."  Next, Marshall stated, "let the end be legitimate", which defined the use and acceptance of broad federal power.  Never would federal power have narrow and unchangeable boundaries.

     To protect this broad federal power from outside encroachment by the states, Marshall affirmed the threat of the tax by Maryland.  Here Marshall stated that the "power to tax involves the power to destroy", restating Webster's argument.  Marshall left no doubt that federal law was supreme over the states.

     The decision infuriated proponents of states' rights.  Marshall was bitterly attacked by newspapers suggesting that he be removed from the Court.  In a formal resolution, the Virginia Legislature proposed that a "super supreme court" be created, by constitutional amendment,  to decide any questions involving distribution of powers between state and federal governments.  Ohio followed by proposing legislation forbidding the recognition of the Bank of the United States.  Pennsylvania proposed a constitutional amendment disallowing the federal government to establish a bank with authority beyond the border of the District of Columbia.  Indiana, Tennessee and Illinois proposed similar legislation.

     History was to intervene to save Marshall.  In late 1819, Missouri and Maine applied for statehood.  The slavery issue clouded the admission of these states.  Both Congress and respective state legislatures were debating the slavery issues.  The Missouri Compromise and its problems pushed Marshall's proposed "expulsion" into the background.

     Even though Marshall's decision in this case established the breadth of federal power, the Bank of the United States was not to last. In Andrew Jackson's second term, he simply withdrew all federal funds from the bank, and the charter was allowed to expire.  When John Marshall died in 1835, Jackson appointed his friend and primary advisor, his Attorney General, Roger Taney to be Chief Justice.

     Marshall 's decision ensured that a strong federal government would survive.  Jefferson had wanted strong states' rights, with both a weak federal government and weak judiciary.  Jefferson's ideas might have pulled our federal government into disaster, had it not been for Marshall's decision in McCulloch v Maryland.