McCulloch v. Maryland

 1. U.S. Congress creates the Bank of the United States
 

2. Maryland taxes the notes of the Bank of the United States.
 

3. The Bank of the U.S. (through McCullough of the Maryland Branch) refuses to pay the tax.
 

4. Marshall says the federal government, created by the people, is  supreme to the state governments. (In “rock, paper, scissors” terms, the  federal government is “paper” and the state government is “rock.”   Hmmm….maybe the people are “scissors” except the state can’t smash the  people. So, forget it.)
 

5. The federal government is given a list of things in the constitution that it can do.
 

6. The federal government is only supreme if it is doing something it is allowed to do as listed in the constitution.  
 

7. The list of things it can do does not include creating a bank but it  does include collecting taxes, borrowing money, regulating trade between  the states, paying for an army.
 

8.  The constitution says the federal government can also do other types  of things (“necessary and proper”) in order to help do the things the  constitution actually says it can do.
 

9.  Creating a bank is one of those other types of necessary and proper things.
 

10. And, since a tax is a burden, the state cannot burden the federal  government in doing things it is allowed to do, such as creating and  running a bank.
 

It’s the oldest story in the world…Congress creates a bank, a state  taxes the bank, the Supreme Court says Congress can create a bank and  the state can’t tax it…and, Marshall declares the federal government  supreme, and the Bank of the United States lives happily ever after, for  like 13 years and then Andrew Jackson, being the big jerk that he is,  kills it because he doesn’t like it. 

 1. Who was James McCulloch?
James William McCulloch was the cashier of the Baltimore Branch of the  Bank of the United States.  His Constitutional fame stems from his  issuance of “respective bank-notes therein described, from the said  branch or office, to a certain George Williams, in the city of  Baltimore, in part payment of a promissory note of the said Williams,  discounted by the said branch or office, which said respective  bank-notes were not, nor was either of them, so issued, on stamped  paper, in the manner prescribed by the act of assembly.”  
In 1821, James McCulloch, along with bank president James Buchanan and  the same George Williams who received the promissory notes in McCulloch  v. Maryland, were indicted for conspiracy to defraud the bank.  The  three men were accused of taking interest free loans of bank notes  without paying interest.  The case was originally dismissed for failure  to charge a crime and because the state had no jurisdiction. Since the  Bank of the United States was a federal agency as opposed to an agency  of the state of Maryland, the court concluded the case did not belong in  state court.  On appeal, the dismissal was reversed and the men stood  trial. Eventually, they were acquitted.
 

From McCulloch v. Maryland 17 U.S. 316,  318-319 (1819) and from A Court of Appeals of Maryland Time Capsule: Six  Historic Arguments in the Nation’s Oldest Appellate Court, 30  University of Baltimore Law Forum, 13 (Summer/Fall 1999)
 

2. The First Bank of the United States: Jefferson vs. Hamilton
The First Bank of the United States was chartered by Congress for 20  years on February 25, 1791.  The concept of the bank was the brainchild  of Alexander Hamilton, the first Secretary of the Treasury and a  visionary for the great future of America.  Early in his tenure at  Treasury, Hamilton was asked by Congress to submit an economic plan for  the young nation.  A central ingredient in that plan was the  establishment of a national bank.  Patterned after the Bank of England,  Hamilton’s Report on the Bank laid out its details.  A 20 year charter  would be given by Congress to only one National Bank with initial  capital of $10 million ($2 million from the government and $8 million  from private investors).  The Bank could issue notes which would be  accepted by the government for payment of taxes.  According to author  David Cowen, this last feature “would provide the Bank with a strong  advantage over its competitors.”  The benefits of the Bank, per David  Cowen, included providing the fledgling nation with “a ready source of  loans, a principal depository for federal monies…and a clearing agent  for payments on the national debt.”  The government would share in the  profits “as the largest stockholder.”
 

The Bank bill passed the House on December 13, 1790, and the Senate on  January 20, 1791.  It sat on President George Washington’s desk awaiting  his signature.  Washington asked the advice of his most trusted  lieutenants on the merit of the Bank Bill.  Both his Secretary of  States, Thomas Jefferson, and in response to Mr. Jefferson, Alexander  Hamilton responded in now famous pieces which embodied their  philosophies on the future of the American economy.
 

Jefferson’s Response
Jefferson responded to Washington in no uncertain terms: “The  incorporation of a bank, and the powers assumed by this bill, have not,  in my opinion, been delegated to the United States, by the  Constitution.” In a point by point analysis, Jefferson began with the  text of the Constitution arguing the power to incorporate a bank is “not  among the powers specifically enumerated.”  Turning to the Necessary  and Proper clause, Jefferson argued the existence of a national bank is  not “necessary” for governing and therefore, not constitutionally  authorized: “the Constitution allows only the means which are  ‘necessary,’ not those which are merely convenient.”  Thus, Jefferson  encouraged President Washington to veto the Bank bill:
 

“The negative of the President is the shield provided by the  Constitution to protect against the invasions of the legislature: 1. The  right of the Executive. 2. Of the Judiciary. 3. Of the States and State  legislatures. The present is the case of a right remaining exclusively  with the States, and consequently one of those intended by the  Constitution to be placed under its protection.”
 

Hamilton’s Response
George Washington requested his Secretary of the Treasury to respond to  Jefferson’s Opinion.  In “Hamilton’s Opinion as to the Constitutionality  of the Bank of the United States,” the Secretary addressed the  critiques of the bank opponents and advocated for a strong central  government.  He argued the Constitution granted the federal government  with “a right to employ all means requisite and fairly applicable to the  attainment of the ends of such power, and which are not precluded by  restrictions and exceptions specified in the Constitution.”  To  Hamilton, the Constitution grants “implied as well as express powers.”   Taking issue with Jefferson’s view of the Necessary and Proper Clause,  Hamilton argued something is “necessary” when “the interests of the  government…require, or will be promoted by, the doing of this or that  thing.”  As an example, he looked to “the Act concerning lighthouses,”  an Act passed by the first federal congress to finance the construction  of coastal lighthouses.  Clearly, the act was passed under “the powers  of regulating trade” but lighthouses were not a “necessity.”  To  Hamilton, a Constitution “ought to be construed liberally in advancement  of the public good.” Hamilton’s summary of his view of interpreting a  constitution sounds very similar to the words of John Marshall in  McCullough:
 

It leaves, therefore, a criterion of what is constitutional, and of what  is not so. This criterion is the end, to which the measure relates as a  mean. If the end be clearly comprehended within any of the specified  powers, and if the measure have an obvious relation to that end, and is  not forbidden by any particular provision of the Constitution, it may  safely be deemed to come within the compass of the national authority.  There is also this further criterion, which may materially assist the  decision: Does the proposed measure abridge a pre-existing right of any  State or of any individual? If it does not, there is a strong  presumption in favor of its constitutionality, and slighter relations to  any declared object of the Constitution may be permitted to turn the  scale.
 

Ultimately, President Washington agreed with Hamilton’s view of a strong  Constitution enhanced by a liberal reading of implied powers.  He  signed the Bank Bill on February 25, 1791.  Thus, the First Bank of the  United States was born.
 

Excerpts are from the following sources:
•    Cowen, David. “First Bank of the United States” EH.Net  Encyclopedia, edited by Robert Whaples. March 16, 2008. URL  http://eh.net/encyclopedia/article/cowen.banking.first_bank.us
•    Jefferson’s Opinion on the Constitutionality of a National Bank: 1791, http://avalon.law.yale.edu/18th_century/bank-tj.asp.
•    Hamilton’s Opinion as to the Constitutionality of the Bank of the  United States: 1791: http://avalon.law.yale.edu/18th_century/bank-ah.asp
 

3. The First Bank of the United States: A Brief History
On July 4, 1791, $8 million worth of bank stock was issued to the public  and purchased quickly (the biggest stock offering in the U.S. to that  date).  The headquarters of the bank were located in Philadelphia  (opened December 12, 1791), with four branches opening in 1792 (in New  York, Baltimore, Boston and Charleston) and an additional four branches  opening from 1800 to 1805 (in Norfolk, Washington, Savannah and New  Orleans).  The Bank served the purpose Hamilton had expected, issuing  bank notes which worked as a safe and secure form of paper money.  The  backing of the federal government helped.  The Bank of the United States  assisted the federal government in obtaining financing (receiving over  $6 million in loans) and helped finance the Louisiana Purchase.  As the  20 year lease came to an end, and Congress debated renewal, political  forces mobilized and narrowly defeated the bill.  The bank closed for  business on March 31, 1811.  For a more thorough history, see The First  Bank of the United States, by David Cowen,  http://eh.net/encyclopedia/article/cowen.banking.first_bank.us.

4. The Second Bank of the United States: A Very Brief History
Five years after the First Bank of the United States closed its doors,  the Congress voted to charter the Second Bank of the United States for a  20 year term.  President James Madison and his Secretary of the  Treasury Albert Gallatin, championed reinstituting the bank to help  finance the war debt from the War of 1812.  Many of the legislators who,  for political reasons were against re-chartering the First Bank,  supported the Second Bank for pragmatic reasons.  The nation’s finances  were in better shape during the tenure of the First Bank. Nicholas  Biddle, the head of the Second Bank of the US sought another extension,  four years before expiration.  Although the bank charter was renewed by  the Congress, Andrew Jackson vetoed the bill.  President Jackson used  the bank as a villain in his populist approach of appealing to the  common man.   The Second Bank was capitalized at $35 million, with 80%  of its stock owned by private individuals.  The criticism was the bank  was a tool for wealthy speculators.  However, Andrew Jackson’s personal  hatred of big business and the wealthy clearly influenced his decision.   Incidentally, we hate Andrew Jackson at Constitutionland.  For more on  that topic see ANDREW JACKSON IS A BIG CONSTITUTIONAL JERK (link to  follow).
 

From Cowen, David. “First Bank of the United States” EH.Net Encyclopedia, edited by Robert Whaples. March 16, 2008. URL http://eh.net/encyclopedia/article/cowen.banking.first_bank.us
 

  5. How did Maryland tax the bank?
In 1818, the general assembly of the state of Maryland passed “An act to  impose a tax on all banks or branches thereof, in the State of Maryland  not chartered by the legislature.”  Other states passed similar laws,  mostly the creation of politicians who remained against the national  bank.  The law stated if a bank not established/ authorized by Maryland  opened a branch in the state, then any notes issued by said bank must be  issued on “stamped paper.” For example, “every five dollar note shall  be upon a stamp of ten cents…and every thousand dollar note, upon a  stamp of twenty dollars; which paper shall be furnished by the Treasurer  of the Western Shore, under the direction of the Governor and Council,  to be paid for upon delivery.”   However, said banks could “relieve  itself from the operation of the provisions aforesaid by paying  annually, in advance, to the Treasurer of the Western Shore, for the use  of State, the sum of $15,000.”  The penalty for not complying was a  $500.00 fine for each offense, and a $100.00 fine for circulating an  unstamped note.  The historic decision, McCulloch v. Maryland began when  James W. McCulloch, the cashier of the Maryland branch, refused to pay a  $100 fine, apparently for circulating bank note without the requisite  Maryland stamp.
 

From McCulloch v. Maryland 17 U.S. 316, 318-319 (1819)
 

6. What attorneys argued McCulloch v. Maryland?
Daniel Webster, William Wirt (U.S. Attorney General) and William Pinkney  argued the case on behalf of McCulloch, and thereby, on behalf of the  Second Bank of the United States.  Luther Martin argued the case on  behalf of Maryland.  For more on that topic see THE GREAT ORATORS RIDE  (link to follow).

7. Is the Bank of the United States around today?  Is a National Bank “Necessary”?  
There was never a third or subsequent Bank of the United States after  Jackson’s veto of the bill to re-charter the Second Bank of the United  States.  Some economists argue the American economic roller coaster ride  of booms, panics, busts and depressions stemmed from the absence of a  bank of the United States.  This is a debate for in Economics-Land, but  not in Constitutionland.  A question that arises in light of the end of  the Bank of the U.S. is whether a national bank is, in fact,  “necessary?”  This brings us back to the Jefferson-Hamilton debate as to  the meaning of the word “necessary.”  Certainly, Jefferson said, and  would argue today the absence of a Bank of the U.S. is further proof it  was never necessary.  Hamilton would argue the Bank of the U.S. as an  aid to the Congress and federal government in enacting other enumerated  powers has been replaced today by the Federal reserve system—even a  further reach from the original constitution. Somewhere, Hamilton is  smiling and Jefferson is crying.