One of the most influential Supreme Court cases in the early United States involved the controversial Second Bank of the United States in 1819. The profound impact from the ruling spells out exactly why McCulloch v. Maryland is so important.
When the state of Maryland attempted to lay down a revenue-generating tax on the Baltimore branch of the Second Bank of the United States, bank cashier James McCulloch refused to pay the tax.
Maryland sued in court with a Maryland judge ruling in its favor. McCulloch’s attorneys appealed to the Supreme Court which heard the case on its merits in 1819.
Despite well-reasoned arguments from Maryland’s team, the Supreme Court unanimously ruled in favor of McCulloch and the Second Bank of the United States.
Chief Justice John Marshall wrote the opinion of the court, in which he further defined the powers of the federal government.
In particular Marshall relied upon the “Necessary and Proper” clause (Article I Section 8) interpreting that although the creation of the National Bank was not a specific enumerated power, it is an implied power as its use helps Congress carry out its duty in relation to regulating commerce.
Marshall used convincing logic and arguments in his opinion with many quotes still shared today.
The landmark ruling in McCulloch v. Maryland had far-reaching implications and further delineated the relationship between federal and state powers. Many consider the case to be among the most important and impactful cases in United States history.
Background of the Case
The Second Bank of the United States (SBUS) was chartered in 1816 as one of the last acts of James Madison’s presidency. The US experience in the War of 1812 showed that a centralized bank would be beneficial to raise funds for war as well as to help regulate commerce.
In its early years the SBUS was fairly weak and had a poor reputation. It was known to heavily benefit the privileged few—primarily wealthy citizens—over the masses.1
Several high-profile financiers of the bank were extremely wealthy, as were many board members. As many of these individuals held copious amounts of government war bonds, there was likely some motivation to help profit off a new, federally-backed bank. John Jacob Astor, of the American fur trade, was among these privileged few.
William Jones, the Bank’s first President, was fairly mediocre in his tenure and allowed far too much speculation and lenient trading terms. Realizing its mistake, the Bank suddenly reversed course and rapidly contracted credit in 1818.
This easy money policy followed by a sudden reversal was one of the primary causes of the Panic of 1819 that helped to ruin many state-chartered banks and brought about an economic depression.1
Given the Bank’s questionable activities, several states took measures to protect their citizens and state-chartered banks from financial ruin.
Maryland implemented an $15,000 annual tax on the SBUS to operate within its borders. Tennessee and Ohio issued a $50,000 annual tax while Kentucky’s was set to $60,000.1
It should be noted that throughout its tenure the Second Bank of the United States was very profitable. It was consistently able to pay a 7% annualized dividend to its shareholders and thus these taxes from states were not unmanageable to pay.1
When the cashier of the Baltimore branch of the SBUS, James McCulloch, refused to pay Maryland’s tax in May 1818, it set up a judicial showdown that eventually made its way to the Supreme Court.
What did McCulloch v. Maryland Establish?
In the Supreme Court case of McCulloch v. Maryland, the court ruled in favor of McCulloch and the Second Bank of the US. In the process the Supreme Court established that the “Necessary and Proper” clause in the US Constitution gave the federal government implied powers not specifically enumerated.
The SBUS employed high-profile and influential attorneys to help defend their case. These men included famed orators William Wirt, Daniel Webster, and William Pinkney.
The defense relied upon simplifying the case down to two parts: 1) Does Congress have the power to charter a bank? 2) Can individual states tax federal institutions and property?
Pinkney in particular gave a resounding argument that lasted three full days. All justices were moved by it, particularly Justice Joseph Story who stated, “I never, in my whole life, heard a greater speech.”1
Maryland’s attorneys had a much lower profile, though they were highly proficient in their own right. In turn, they focused not on the issues of states’ rights vs federal power, but on the issue of whether the Second Bank of the United States was really just a private bank with a federal charter.2
If it was considered a private bank, Maryland was within its rights to tax it.
Nearly 80% of the bank’s stock was owned by private investors and 80% of the bank’s board of directors were appointed without federal supervision. As the federal government ultimately did not make the final decisions at the bank, it was essentially just a stockholder. Maryland’s attorney argued this hardly justified its tax-exemption status.3
Unfortunately their arguments went unheeded. Chief Justice John Marshall’s opinion for the unanimous court did not even deign to answer the most convincing points from Maryland.
In fact, there is some speculation that Marshall may have penned the decision before the case was even heard, given the time sequence and lengthy opinion.1
The Constitutional Principles in McCulloch v. Maryland
The constitutional principles discussed in McCulloch v. Maryland include Article I Section 8, or the “Necessary and Proper” clause, as well as Article VI that states that federal law is the “Supreme Law of the Land.”
In his opinion Chief Justice Marshall gave a wide interpretation of the “Necessary and Proper” clause and in turn established the doctrine of implied powers. Even though the creation of a national bank was not a specific enumerated power expressly written in the Constitution, it is implied that Congress has that power in order to fulfill its enumerated duty to regulate commerce.1
Marshall carefully worded his response to avoid the challenge of unlimited federal power:
“Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consistent with the letter and spirit of the Constitution, are constitutional.”
Marshall also cited Article VI of the Constitution in reply to how federal power is supreme and takes precedence over states when they come in direct conflict. Giving states the ability to tax federal institutions and instruments would set a dangerous precedent.
Marshall wrote that if a state can tax the federal government at all, there is no point where the tax could become void.
“If the States may tax one instrument, employed by the government in the execution of its powers, they may tax any and every other instrument. They may tax the mail; they may tax the mint; they may tax patent rights; they may tax the papers of the custom-house; they may tax judicial process…”
Daniel Webster painted a picture of a scenario where states would tax even the federal judiciary if they did not agree with its interpretations. As Marshall put it bluntly, “the power to tax is the power to destroy.”1
Why is McCulloch v. Maryland Important?
The key reason why the Supreme Court case of McCulloch v. Maryland is so important is due to the far-reaching implications resulting from the decision. The unanimous decision laid the foundation for implied federal powers far beyond the matter of taxation.
Historians often refer to the case as one of John Marshall’s greatest decisions that has stood the test of time against attacks from states’ rights activists.1
The Supreme Court’s decision helped to align the courts with Hamiltonian and Federalist principles as well as national leaders like Daniel Webster and Henry Clay. This rang true for other landmark Marshall decision such as Gibbons v. Ogden and Fletcher v. Peck.
It is clear that even though the Federalists never recovered as a national political force after the Hartford Convention of 1814, their principals still heavily influenced the young nation.
The decision has since served as precedent in numerous court inquiries. In particular, Marshall reemphasized his opinion in Osborn v. Bank of the United States in 1824 while also finally addressing the more private nature of the bank.3
The interpretation of implied federal powers also helped to legitimize proposals for a system of roads, bridges, and canals across the country under Henry Clay’s American System.
Not all agreed with Marshall’s decision. Marshall may have overstepped in making such a far-reaching declaration in a case involving the SBUS where the implications were not entirely applicable to the decision at hand.3
The case helped to highlight the growing sectionalism across the United States between those who supported expanded federal power and those who favored more states’ rights. The growing rift and the national coverage of the McCulloch v. Maryland case helped contribute to the end of the Era of Good Feelings.
To learn more about US history, check out this timeline of the history of the United States.
1) Plous, Harold J., and Gordon E. Baker. “McCulloch v. Maryland Right Principle, Wrong Case.” Stanford Law Review, vol. 9, no. 4, Stanford Law Review, 1957, pp. 710–30, https://doi.org/10.2307/1226645.
2) Killenbeck, Mark R. Law and History Review, vol. 27, no. 3, [American Society for Legal History, Board of Trustees of the University of Illinois, Cambridge University Press], 2009, pp. 690–92, http://www.jstor.org/stable/40646068.
3) Mattie, Sean. “THE VIEW FROM THE LOSING SIDE.” The Review of Politics, vol. 71, no. 3, [University of Notre Dame du lac on behalf of Review of Politics, Cambridge University Press], 2009, pp. 513–16, http://www.jstor.org/stable/25655854.