Appellant: James William McCulloch
Appellee: State of Maryland
Appellant's Claim: That a Maryland state tax imposed on the Bank of the United States was unconstitutional interference with federal government activities by the state.
Chief Lawyer for Appellant: Daniel Webster
Chief Lawyer for Appellee: Joseph Hopkinson
Justices for the Court: Gabriel Duvall, William Johnson, Henry B. Livingston, Chief Justice John Marshall, Joseph Story, Bushrod Washington
Justices Dissenting: None (Thomas Todd did not participate)
Date of Decision: March 7, 1819
Decision: Ruled in favor of McCulloch by finding that Congress had a constitutional power to establish a national bank and states could not legally interfere with federal law.
Significance: The ruling established the principle of implied powers through a broad interpretation of the U.S. Constitution, giving Congress an expanded role in governing the nation. The decision also reinforced the supremacy of federal law over state law when the two conflict. The landmark ruling became the basis for key Court decisions throughout the nineteenth and twentieth centuries supporting congressional activities.
Article I of the U.S. Constitution gives Congress power to make laws. Section 1 provides "all Legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and a House of Representatives." Furthermore, Section 8 of Article I enumerates (specifically names or lists) the specific areas where Congress may exercise its law making powers. These include the power to declare war, raise and support armies, provide a navy, regulate commerce, borrow and make money, collect taxes, pay debts, regulate immigration and naturalization, pass bankruptcy laws, and provide for the common defense and general welfare of the United States. Clause 18 of Section 8 also declares that "Congress shall have Power . . . to make all Laws which shall be necessary and proper" for executing (carrying out) its powers.
Almost immediately after the birth of the new nation, a question inevitably arose concerning the list of enumerated powers. Was Congress' power limited by the "necessary and proper" clause to only a few laws needed to carry out the indispensable activities clearly listed in the Constitution? Or, did the clause actually grant Congress broader powers to do almost anything "necessary and proper" to provide for the welfare of its citizens?
The answer came in 1819 in McCulloch v. Maryland. McCulloch provided the U.S. Supreme Court its opportunity to define how broad Congress' power should be and, additionally, to what extent states could regulate activities which fell within the powers of the national government. In McCulloch the Court specifically was asked to consider if Congress had the constitutional power to charter a national bank, and, if so, could a state constitutionally impose a tax on that bank.
An Unpopular National Bank
Following the American Revolution War (1776783) the new country urgently needed a sound financial system. In response, Congress established in 1791 the First Bank of the United States, located in Philadelphia. Many argued that the Constitution did not give Congress the power to establish such a bank. However, the bank closed in 1811 and the issue largely died. The need for a second national bank soon became apparent again in 1816, after the expenses of the War of 1812 (1812814) pushed the country into a financial crisis. The second bank was established by an act of Congress and began providing loans to state banks and private individuals.
Foreshadowing a long period of up and down swings in the nation's economy, the boon created by the national bank loans soon turned to a bust. Mismanagement of the national bank plus its extension of too much credit forced the bank to call in many of its loans causing many state bank failures. The national bank became very unpopular among the states. Individual states attempted to restrict the bank's operation within their boundaries. Maryland chose to try to tax the national bank's branches out of existence by passing legislation which, in effect, applied to those branches only. The Maryland law provided that all banks not chartered in the state but operating within the state must issue their bank notes (paper money) on paper bearing the tax stamp of the state. The tax stamp was a 2 percent tax on the value of every note issued, or 2 cents on every dollar. James McCulloch, the cashier at the Baltimore branch of the national bank, continued to issue notes without paying the tax. The state of Maryland convicted and fined McCulloch for issuing bank notes without paying the appropriate state tax. He appealed to the U.S. Supreme Court which agreed to hear the case.
Daniel Webster's Argument
McCulloch's chief lawyer, Daniel Webster, argued Congress had the constitutional right to charter a bank and its branches even though the Constitution did not actually enumerate the power to charter a national bank. He further pointed out that a state could not tax a federal activity. If that were allowed, separate states could control federal government actions, greatly weakening the federal government. Maryland simply responded that Congress had no power to charter the bank, and the state indeed had power to tax the bank.
The Court had two questions before it. First, did the "necessary and proper" clause imply (hints at) that Congress had the power to charter a national bank? Secondly, could the states tax a national bank or should national activities be supreme?
To Endure for Ages
Chief Justice John Marshall, writing a brilliantly crafted opinion for the Court, established two key constitutional principles which still persisted in the year 2000. In the first, the implied powers principle, Marshall reasoned that congressional powers actually listed in the Constitution such as the powers to issue money, borrow money, collect taxes, and maintain armies implied that Congress could do whatever was "necessary and proper" to carry out these activities including chartering a national bank. As a result, the Necessary and Proper Clause is also known as the Implied Powers Clause. Marshall's reasoning enables Congress to undertake activities not specifically enumerated by the Constitution but nevertheless implied. Marshall wrote that as long as congressional actions had a "legitimate" basis consistent "with the letter and spirit of the Constitution" they were constitutional. This interpretation greatly expanded congressional authority.
Marshall emphasized in McCulloch the Constitution must be flexible and adapt to human needs. He wrote, the Constitution was "intended to endure for ages to come, and, consequently, to be adapted to the various crisis of human affairs."
The second principle, that of national supremacy, prohibits states from interfering with constitutional activities of the federal government. Marshall stated that allowing states to tax part of the national government disrupted the supremacy of the Constitution and of national laws over conflicting state laws. Hence, states could not tax the national bank.
A Long Document
In McCulloch, Marshall made it clear that the Constitution of the United States was to be applied by courts with flexibility and awareness of the nature of each problem. The Constitution was to be a living document, adapted to new conflicts and situations that arise through the years. It was not to be applied in a narrow fashion limiting legislative power to the exact words written in the Constitution. Many laws passed later by Congress throughout the nineteenth and twentieth centuries were enacted based on Marshall's broad interpretation of the Necessary and Proper Clause.
The McCulloch decision also strengthened the idea of nation supremacy. Although the Supreme Court became more supportive of states' rights after the American Civil War (1861865), by the late 1930s the Court shifted back toward Marshall's earlier position. It began to invoke the Supremacy Clause found in Article VI, Section 2 of the Constitution, and again firmly established that constitutional acts of Congress were supreme and state law must yield to them.
Marshall's words furnished an insightful beginning for the new nation in interpreting the Constitution regarding the evolving active nature of the document and the concept of supremacy of constitutional
national laws. Marshall's reasoning endures at the start of the twenty-first century.
Suggestions for further reading
Gunther, Gerald. John Marshall's Defense of McCulloch v. Maryland. Stanford, CA: Stanford University Press, 1969.
Hammond, Brag. "The Bank Cases." In Quarrels That Have Shaped the Constitution, edited by John A. Garraty, New York: Harper & Row, 1987.
Remini, Robert V. Daniel Webster: The Man and His Time. New York: W.W. Norton & Co., 1997.
Robarge, David. A Chief Justice's Progress: John Marshall from Revolutionary Virginia to the Supreme Court. Westport, CN: Greenwood Press, 2000.
Did this raise a question for you?