The Great Cases, No. 4: McCulloch v. Maryland

The Bank of the United States was, from its conception until its demise in the early 1840’s, the most contentious political issue in the United States of America other than slavery. Questions of war and peace did not evoke stronger emotions than did the Bank. Politicians staked their careers on grandstanding against (or sometimes for) the Bank. Andrew Jackson would use opposition to the Bank as a principal focal issue to galvanize the unwieldy Democratic-Republican Party under his control, debatably giving it a more prominent place in politics than even slavery.

It was the Health Care Reform of the first half-century of the United States’ political history, a sore tooth in the body politic, constantly worried by the tongues and hands of politicians. And that political sore tooth gave us the last of the four critical Marshall-era Supreme Court decisions staking out the supremacy of the Federal government and the judiciary’s role within it. And, aside from the United States itself, the Second Bank of the United States was the most frequent litigant before the Supreme Court for the duration of its existence. Though it was later humbled by mistakes of its executives and eventually neutered when President Jackson withdrew Federal deposits from it; McCulloch v. Maryland was the Bank’s first existential threat.

 

The Rise And Fall Of The First Bank

The first incarnation of the Bank of the United States was chartered in 1791, conceived by Secretary of the Treasury Alexander Hamilton the year before, as a private bank through which the Federal government would coin money, issue standardized specie, manage and pay down the public debt left over from the Revolution, and stimulate economic activity through low-interest loans to other financial institutions and to individuals.

Thomas Jefferson and James Madison led the populist opposition to the Bank, seeing it as a vehicle by which the government would transfer money and line the pockets of industrial and financial elites while diverting tax money and economic energy away from agrarian and real-estate based expansion. The subject of non-stop controversy from its proposal to the expiration of its charter in 1811, Congress followed President Madison’s cue and refused to re-charter the Bank in 1810. The assets of the First Bank of the United States were purchased by a private banking concern based in Philadelphia in 1811.

 

James Monroe Changes His Mind

War with Britain broke out the next year, and the Federal government financed the proposed and failed invasion of Canada, and then the defense of the homeland, through the sale of debt. Faced in 1816 with a mountain of debt comparatively even greater than had been left over after the Revolution, President Madison swallowed his pride, reversed his policy, and solicited Congress for a charter for a Second Bank of the United States (hereinafter “BUS” or “Bank”). He’d reluctantly conclude that a new BUS was the best available means of gaining some control over the money supply, stimulating the economy, and making money to manage the debt. After contentious debate fracturing both parties, Congress chartered a Second Bank, which again proved, from cradle to grave, every bit as unpopular and controversial as its predecessor.

So, the Second Bank of the United States opened for business in 1816. It had branches in every state and enjoyed a special relationship with the Federal government as the depositary bank for Federal assets and the resting-place for Federal tax receipts. Since the government was primarily financed by duties rather than other kinds of taxes, the most important branches of the Bank were those located in or near the major port cities: Boston, New York, Philadelphia, Baltimore, and Charleston.

As much as we might today want to say that the Bank of the United States was the equivalent of the Federal Reserve today, it was not that. BUS banknotes were treated as negotiable paper currency, and it did issue them with an idea towards what we would call regulation of the supply of money, but the BUS was explicitly a for-profit institution. While the government was the largest of the BUS’s many stockholders, its total equity share was only 20% and only five of its twenty-five directors were named by the Secretary of the Treasury.

 

The Controversy Over The Bank

The bank’s proponents had arguments in their favor for the use of the bank: the land speculation did encourage westward expansion, development of industry, and encouraged substantial international commerce through its extension of credit terms to both institutional and individual depositors, and within only a few years of the Bank’s operation, the government was indeed able to reduce its burden of debt to an easily-manageable level — the debt did not go away, precisely, since new short-term debts were incurred. But through the magic of accounting, interest paid on the debt effectively did as BUS banknotes were churned in the form of payment to the creditors of the war or exchanged outright for the 1816 equivalents of T-bills.

But the Bank’s critics had justification for their distrust of the institution as well. As before, the concentration of that much wealth and power, in that close of proximity to the government itself, seemed inherently antidemocratic and a fertile ground for the growth of corruption. And indeed, many of the Bank’s senior officials were corrupted and used public monies in sweetheart deals. Perhaps most damaging was that the Bank’s low-interest loans, often substantially undercutting private, state-chatered banks, made money so cheap that real estate speculation bubbles percolated across the western frontiers like so much gas rising out of yeasted dough.

As for the Bank itself, its policies were very liberal. It became a lender of first resort for its low interest rates, low ratio of capitalization to debt, generous terms offered to land specualtors, and ability to call specie for repayment at will — fueling fears that its policies, implemented pervasively across the country, would lead to a bubble in real estate prices that would cause a financial panic.

The Bank’s leaders in Baltimore visibly lived lives of ostentatious wealth and luxury. There were persistent rumors that they were corrupt and skimming profits for themselves. More about this later.

And it was always conceded all around that nowhere in Article I’s enumerated powers was chartering a Bank something that Congress had the explicit authority to do. So the most serious concern was not that the Bank was a bad idea or was vulnerable to corruption, but rather that it represented an unconstitutional overreach of Federal power. Some states threatened to secede if Congress permitted the BUS to continue existing; conversely, other politicians indicated that the economy of the nation had grown to the point that it simply could not survive without the BUS or something like it.

I told you it was the Health Care Reform of its day. People got spitting mad about this.

 

The Old Line State Draws A Line In The Sand

In 1817, the BUS opened up its Baltimore, Maryland branch. William McCulloch was initially the Baltimore branch’s cashier (sort of equivalent to what we would today call a Chief Operating Officer) and later he was elevated to be the regional President of the Bank, reporting directly to the Bank’s Board of Directors. A clever man of financially humble origins, McCulloch bought one of the largest, nicest homes in Baltimore and acquired a significant household staff.

This was probably not politically wise in Maryland, one of the more strident anti-Bank states in the Union. There had been some talk of secession related to the Bank controversy, but for reasons related to geography, Maryland considered secession impractical unless either Virginia or Pennsylvania went with it and that didn’t seem likely to happen. So Maryland’s legislators decided that if they couldn’t get out of the Union that had done this terrible thing by chartering the Bank, it could at least “protect” its citizens from it. And it didn’t hurt that Maryland was very close to the seat of the national government. Which gave Maryland’s strongly anti-Bank legislators ample time to come up with all sorts of creative ways to make their point.

Oddly, I’ve found no record of an opinion on the Bank taken by Maryland’s Federalist Governor, Charles Carnan Ridgely. You would think a Federalist would have been pro-Bank, even if the electorate as a whole was anti-Bank. That assumption ought not be strong, though; a minority faction of Federalists had opposed the creation of the Bank in 1816 and the balance of Ridgley’s political career shows little concern for national interests. Even if there had been an official party line on the Bank, the Federalists had become very, very weak as a political force by 1818, having spent the last of their political capital opposing the War of 1812. As a practical matter, it had ceased to have a coherent vision of government other than reflexive opposition to the Democratic-Republicans and the preservation of capital and old money. So Ridgely was probably a Federalist for no better, and no more, reason than that he was rich, and there was no one to stop him from opposing the bank if he’d felt like it.

It took until February of 1818 for Maryland’s legislature to select its gambit against the Bank from among the many options it considered. The stratagem ultimately implemented turned out to be a rehash of the Stamp Act which was one of the precipitate acts of Parliament that had underlain the American Revolution. Under this new law, any bank that did not have a charter issued by the State of Maryland would be limited in the denominations of bills it could issue in Maryland, and it could only issue bills on paper that had been pre-stamped by a state Treasurer and for which a tax had to be paid.† Any officer or cashier of a non-chartered bank would be liable for a $500 fine per note circulated without a stamp, and anyone trying to use such a note as currency would be liable for $100 per note thus used. Any member of the public could initiate an action in the Maryland county courts to collect this fine, which would be split, 50-50, between the state and the private accuser, called an “informer.”

When the Legislature described the law as applying to any bank that did not have a state charter, that meant the Bank of the United States. Every other bank in the state had a state charter; it had to in order to exist. There was no such thing as a national bank like MBNA or Wells Fargo at the time; all banks were intensely local businesses. The only national bank of any kind was the Bank of the United States. This law might as well have named William McCulloch as its primary target in its preamble.

 

James Versus The Bank

McCulloch, acting on orders from the directors of the Bank (the famous banker Nicholas Biddle was one of them but not yet the national Director of the BUS), refused to buy the state’s paper when the tax law took effect, and instead simply issued the Bank’s notes exactly the same way as it had been doing in the main branch up in Philadelphia without so much as contacting the state’s Treasurer.

Since the enforcement mechanism built into the law was a bounty based on a private plaintiff, someone had to file an “information” against the bank. As it happens, the winner of the monetarily incentivized race to the county courthouse was a man from Baltimore named John James. I don’t see any record that Mr. James was a particularly political person (although it’s a good guess he wasn’t a fan of the Bank). It looks to me like he just plain wanted the bounty money available for reporting the Bank and had enough capital to bankroll the legal fight he knew would result from trying to grab it.

There was substantially no dispute as to the facts; the case was submitted for judgment on stipulated evidence. James won handily and quickly in the County Court and the Bank immediately appealed to the Supreme Court of Maryland. The state’s highest court again acted quickly and decisively, finding that Maryland’s state constitution gave it plenary and explicit authority over regulating banks, and affirmed the judgment.

Very annoyingly, I cannot find a citation for the amount of that judgment. But at $500 per bank note issued by the Baltimore branch of the BUS, though, the amount would easily have been in seven figures. (That’s millions of 1818 dollars, or hundreds of millions of today’s dollars.) With that penalty as the enforcement mechanism for the tax, Maryland would have had the power to seize every asset of the BUS that was in Baltimore — all the specie on deposit, and more importantly all of the loans the Bank had made and all the mortgages securing those loans, on land both in Maryland and elsewhere. For Mr. James, that would be a “win-the-lotto” kind of payday; for Maryland and its leaders, it meant curtains for the hated Second Bank of the United States. The only question mark was what the Supreme Court of the United States would do.

 

Federal Supremacy

Chief Justice Marshall, and the rest of the Supreme Court, was ready for the challenge. Recall that Marshall’s modus operandi was the enlargement and assertion of Federal power. Nevertheless, the more-important-than-they-are-today oral arguments took place on February 22, 1819, and the announcement of the Supreme Court’s decision came less than two weeks later. And the decision was meaty, lengthy, and densely reasoned.

Simply put, not even he or his protégé Joseph Story could have written something like this in a week. Did he pre-judge the case? It’s hard to say other than that he had considered the issue beforehand. The Bank was the issue of the post-War years. Not a single Justice on the Court could have been unaware of the issues, of the clash of state’s rights versus federal power coming directly their way because it was written across the headlines of every newspaper in the country for months in advance. He wrote in the preamble of his opinion that the issue raised by this case was one that if not peacefully and correctly resolved, it would spur further “hostile legislation, perhaps, of hostility of a still more serious nature; and if it is to be so decided, by this tribunal alone can the decision be made.” 17 U.S. at 402.

In other words, Marshall viewed the resolution of this case as a make-or-break moment in the prevention of a civil war. Perhaps he was more right than he was dramatic about that, given that there had been talk of secession.

Picking up where Story had left off in Martin v. Hunter’s Lessee, Marshall indicated that the Constitution appropriately and consistently with the principles of democracy trumped any act of any individual state, since the Constitution had been enacted by super-majorities from a super-majority of the states. By 1819, it had been adopted by super-majorities of all the original thirteen States and the rest of the States owed their existence to the Constitution itself.

 

The Business of Building Banks

From there, Marshall tackled two questions. First, can Congress charter a bank? As noted above, Article I does not mention banks anywhere. But on the other hand, it didn’t prohibit Congress from doing that, either. So when there is silence on a particular disputed power of the Federal government, what happens then? Well, recall the wording of the Tenth Amendment:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

That would seem to settle it. The power to charter a bank is neither delegated to the Federal government in Article I, nor are the seveal States denied the power to charter banks anywhere in the Constitution. So the Tenth Amendment would seem to indicate that the states, and not the national government, are the ones that can charter banks. Not so fast, says Marshall:

Among the enumerated powers, we do not find that of establishing a bank or creating a corporation. But there is no phrase in the instrument which, like the Articles of Confederation, excludes incidental or implied powers and which requires that everything granted shall be expressly and minutely described. Even the 10th Amendment, which was framed for the purpose of quieting the excessive jealousies which had been excited, omits the word “expressly,” and declares only that the powers “not delegated to the United States, nor prohibited to the States, are reserved to the States or to the people,” thus leaving the question whether the particular power which may become the subject of contest has been delegated to the one Government, or prohibited to the other, to depend on a fair construction of the whole instrument.

Although the term did not yet exist, the sorts we would today call “strict constuctionists” would have had their heads explode upon reading the phrase “incidental or implied powers.” No, there is no such thing, either the Constitution delegates a power to the Federal government, or it does not, and just to make damn sure that there’s a difference, that’s why we passed the Tenth Amendment in the first damn place! But with the paragraph above, Marshall sidesteps the issue by insisting that the Tenth Amendment is only part of the Constitution and we’ve got to read the whole document as a coherent whole.

And what we do know is that Congress does have “…great powers, to lay and collect taxes; to borrow money; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies. The sword and the purse, all the external relations, and no inconsiderable portion of the industry of the nation are intrusted to its Government.” And to make all this happen, the government has to impose and collect taxes. How is it to go about doing that? The answer is, as it chooses to, because “all legislative powers appertain to sovereignty:”

The Government which has a right to do an act‡ and has imposed on it the duty of performing that act must, according to the dictates of reason, be allowed to select the means, and those who contend that it may not select any appropriate means that one particular mode of effecting the object is excepted take upon themselves the burden of establishing that exception.

Since it is a sovereign that can establish a corporation, any sovereign can do it. The Federal government is sovereign, and so is the state of Maryland. Both can charter corporations, like banks. This isn’t a huge leap — after all, both governments can impose and enforce taxes; why shouldn’t other aspects of sovereignty apply to both as well? And no one questioned the ability of Congress to create penal laws to punish, by imprisonment or labor, the violation of other laws more directly relating to enumerated powers; this is inherent in the idea of a sovereign enforcing its laws. Although Article I does not explicitly allow the creation of Federal prisons or the hiring of Federal marshalls to populate those prisons with criminals (say, someone who stole mail, given that Congress explicitly can create a post office) since without that power, the laws would be but words on paper devoid of any enforcement.

Thus we see the beginnings of what is now known as the concept of concurrent powers — the Federal and state governments can act in the same sphere of subject matter. As to what happens when they act at cross purposes to one another, well, Mr. Chief Justice Marshall is going to get to that, don’t you worry.

And to cement the deal, Marshall cites the last clause of Article I, Section 8. No one disputed that Article I, Section 8 sets forth a laundry list of things everyone agreed Congress has the power to do. But the last clause says that Congress also has the power…

…To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

This is called the Necessary and Proper Clause, and it is indeed nebulous in scope. To hammer the nebulosity of the point home, Marshall points out that the word “absolutely” does not precede the word “necessary,” which means that, effectively, the word “necessary” means “reasonably anticipate to be effective.”

Combined with the intellectual background that there are such things as “implied powers” without which the explicitly-enumerated powers would not make sense, and the further concept that as a sovereign government, the Federal government can do things that sovereign government have always been able to do, Marshall determines that indeed, if Congress thinks it is necessary and proper to pursue some other enumerated goal by chartering a bank, it can do so. Since the Bank was created to handle the government’s money, and the money in turn pays for things like regulating interstate commerce, paying for the Navy and the post office, and all the other things the Congress can explicitly do in Article I Section 8, the Bank is a “necessary and proper” tool to pursue those ends.

Now we know: Congress can charter and invest in a private, for-profit Bank if it wants to. This appears to still be good law.

 

The Power To Destroy

Having established that the Bank was properly in existence, Marshall next turned to the validity of Maryland’s law. Given that Congress can, in fact, charter a bank, why should we worry about the state of Maryland taxing it? After all, the tax would be $15,000 a year, which the Baltimore branch of the Bank could very probably have afforded and still remained both profitable to its investors and effective to the government.

The analysis begins by noting that taxation is a fundamental and inherent power of a government, an incident of sovereignty. He goes on to note that the Constitution allocates and restricts certain kinds of taxes — in particular, it prohibits a state from taxing imports or exports. Then he does something really interesting to set up his next punch:

If the obligation of this prohibition must be conceded — if it may restrain a State from the exercise of its taxing power on imports and exports — the same paramount character would seem to restrain, as it certainly may restrain, a State from such other exercise of this power as is in its nature incompatible with, and repugnant to, the constitutional laws of the Union. A law absolutely repugnant to another as entirely repeals that other as if express terms of repeal were used.

For Constitutional scholars, this is foreshadowing of all sorts of interesting stuff we know is coming down the pike — like Inverse Commerce Clause cases, and the concept of substantive due process in the Fourteenth Amendment. In 1818, of course, those things were not yet extant in the jurisprudence, but just as Marshall finds implied powers for the Federal government, he sets up here the idea that there are also implied restrictions on powers — implied restrictions on state powers, in this case.

So, although there is no express provision indicating that a Federal entity is immune from state taxation, such an immunity might be implied in the notion that if the Federal government is unable to act without restriction in the exercise of its powers, then it is not really sovereign at all.

Marshall flirts with but eventually walks away from the notion that a tax that is very mild and would not realistically interfere with the operations of the Bank can be allowed. It’s not for the courts, he says, to decide whether a $15,000-a-year tax on a bank lending millions and millions of dollars is too steep to be tolerated as what is reasonable. The question is whether any tax at all is permissible. This portion of the opinion is commonly misquoted as saying “The power to tax is the power to destroy.” That’s close — Marshall actually wrote:

That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create; that there is a plain repugnance in conferring on one Government a power to control the constitutional measures of another, which other, with respect to those very measures, is declared to be supreme over that which exerts the control, are propositions not to be denied.

Therefore, if the Federal government is subject to taxation by a state, it is subordinate to the state. The Federal government is not subordinate to a state unless it chooses to be, because the Constitution states that Federal laws are the supreme laws of the land. The tax is doomed at this point.

In closing the circle, though, Marshall does something else rather interesting — he quotes the Federalist Papers to back up his point. The first reference to the Federalist Papers in Supreme Court jurisprudence I can find is in Stuart v. Laird (1803) 1 Cranch 229, 304; again in Marbury v. Madison (1803) 1 Cranch 137 at 147 and 151; and again in Fletcher v. Peck (1810), 6 Cranch 87 at 122. At this point in the Supreme Court’s history, it had decided a total of 564 cases before reaching McCulloch, and had cited to the Federalist papers only thrice before.

Marshall led the unanimous court to conclude that Maryland’s tax was unconstitutional and the Federal government was supreme: “…the States have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the General Government.”

 

Aftermath Of The Case

The decision was, as you might imagine, political lightning striking across the country.

The euphoria of Bank backers was short-lived, though. Ten days after the McCulloch decision was announced, the new President of the Bank of the United States announced that the Baltimore branch of the bank had made more than three million dollars’ worth of unauthorized loans, more than half of which had been to McCulloch himself, his predecessor, and his cashier, and they had used those loans to speculate in BUS stock. They were eventually indicted by the State of Maryland of attempting to defraud the BUS, with the apparent approval of the Federal authorities who did not think that Federal laws as then extant permitted such a prosecution in the Federal courts. They were narrowly acquitted after a bench trial and an appeal. They all, however, lost their shirts and forfeited all of their assets to the Bank; McCulloch himself recovered and made a second fortune as a railroad lobbyist; his colleagues did not fare so well.

The fact that the Panic of 1819 broke out a few months after this decision did not help the Bank’s political capital, either. Faced with a shortage of capital in part caused by the generous loans to the Baltimore branch’s executives, the Bank made specie calls, and found many of its debtors unable to make payments. This caused a run as investors and depositors sought to withdraw their own specie, fearing a failure of the BUS. A chain reaction the likes of which would be repeated in 1879 and 1933 resulted. The Bank was widely blamed for the four-year recession that followed in much the same fashion that major financial houses today have borne a large share of the blame of the Great Recession of 2009.

The run and near-failure of the scandal-plagued Bank on top of a still-industrializing economy that was already less healthy than had been imagined spiralled into widespread foreclosures on real property, shortages on specie with which to conduct everyday transactions, and levels of urban unemployment we would today associate with Third World economies — at one point, it is estimated that three out of every four able-bodied men in the city of Philadelphia were out of work. The BUS absorbed a lot of the blame for the Panic, although the real causes of the financial crises were then murky and even today remain controversial.

Between the unsuccessful gamble of opposing the War of 1812 and backing the Bank in its legal challenges, the Federalist Party fell below a critical mass of political power and ceased to be self-sustaining. It fielded no Presidential candidate in 1820, ceased to exist as a national organization in 1823, persisting thereafter only in pockets of New York, Connecticut, and Delaware. The last elections won by any Federalist party were a handful of seats in the Delaware state legislature in 1826. The McCulloch case was one of the final nails in the Federalists’ coffin, and so it helped lead to a decade of one-party rule in the United States called, inaccurately, the “Era of Good Feelings.”

In fact, the name, and the appearances, were deceiving. With only one viable political party in the country, political dissent and disagreement was internalized into that party. Simmering resentment of the Bank and of its prominent legal victory was one of the wells of national discontent into which Andrew Jackson tapped as he organized an insurgent faction of the now-dominant Democratic-Republican Party. Jackson’s feud with John Quincy Adams was the symbol of the underlying struggle of the pro-Bank and anti-Bank factions of the Democratic-Republican Party; by the time of Jackson’s election in 1828, the anti-Bank faction had gained the upper hand. The Whig Party would not be organized until 1833.

 

John Marshall Gets Expansive

The case shows two significant transformations, or at least mileposts, in Marshall’s approach to the Constitution as part of the legal structure of the United States.

First, Marshall switched from a narrow reading of the Constitution to an expansive one. Where in Marbury v. Madison he took a narrow reading of the Supreme Court’s jurisdiction in Article III so as to find leverage to place Congress in contradiction to the Constitution, here he took a wide view of the Necessary and Proper Clause to place Congress in congruence with the Constitution (and thus to place Maryland in opposition to it). “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 consist with the letter and spirit of the constitution, are constitutional,” Marshall wrote.

Second, the Constitution itself had begun to receive its mantle of not only legal supremacy, but something intangibly more important than that. Marshall wrote in McCullough the famous line, “We must never forget that it is a constitution we are expounding.” It is, he says, “a Constitution intended to endure for ages to come, and consequently to be adapted to the various crises of human affairs.” This signals, although it probably did not initiate, the “cult of the Constitution,” the idea that the Constitution is somehow apolitical and its authors were wiser than its readers; it is not only the highest law of the land, but a kind of Higher Law worthy not only of respect and deference, but also veneration. The idea that the Constitution is somehow sacred persists to this day.

It is an open question based on this passage of McCulloch whether Marshall thought that the Constitution is intended to be readily malleable (“to be adapted”) or difficult to alter (“to endure for ages to come”). As the contrast with Marshall’s own intellectual approach in Marbury shows, Marshall could certainly be malleable in his thinking about the Constitution, and he was one of a rapidly-dwindling number of people who had personal recollection of what the issues raised in drafting and ratification of the Constitution had even been; he includes a few choice words pointing to the intent of the Framers as something worthy of consideration and respect, but a few other choice words about adapting to the unknown exigencies of the future. So there’s a little something in there for everyone today.

 

McCulloch’s Enduring Legacy

And, at the heart of the case, the Supremacy Clause and the Necessary and Proper Clause were underlined forcefully. The Federal Government’s legal status as the superior government over all of the United States was, after Marbury, Fletcher, and Martin, well and truly ensconced in the legal superstructure of the no-longer-so-new, and no-longer-so-small, constitutional republic. That status would not fall into serious question again until the 1850’s, and never again thereafter. In that sense, McCullough represents the coup de grâce of John Marshall’s career.

Here’s a good time to point out that this case could have been decided differently. Had the Tenth Amendment been read with more muscle, and the Necessary and Proper clause read more searchingly and narrowly, it would have been entirely possible to read Congress’ chartering of the BUS as ultra vires — that is, an act which exceeded the powers held by Congress and therefore which violated the Constitution. Had that been the shape of the adolescent Republic, the nation as we know it today would look very different indeed. This vision of a looser coalition of more strongly autonomous States would be offered again by the Confederacy in the 1860’s and remains a discreet but detectable subcurrent of Constitutional theory today.

I suspect that had Mr. James won as Maryland’s informant and collected his bounty, the United States today would be governed in a manner roughly resembling the way the European Union is governed in reality — which is to say, not really “governed” so much as “contentiously guided.”  I also suspect that had he done so, the Baltimore branch would have had the shenanigans of its officers exposed all that much faster, and the Bank would really have failed, and the Panic of 1819 would have been even worse than it was. We’ll never know, of course.

McCulloch didn’t have to turn out the way it did. A weaker Chief Justice, like John Jay (who was never really interested in the job in the first place) or John Rutledge  (who never commanded enough respect from either his Brother Justices or from Congress to discharge his duties effectively) could easily have presided over a badly-fragmented Court — or even seen the case turn out with a contrary result. A secession crisis precipitating as a result would have been unlikely but not out of the realm of sober possibility. Fortunately for the United States, though, John Marshall was a strong leader who wrote dense and logical opinions, had a strong sense of political and institutional realities, did forge consensus among his colleagues, and thus delivered a unanimous opinion so fundamental to our contemporary notions of government that its results are functionally unquestioned today.

For me, this case ultimately represents the capstone on the Federal Supremacy Clause: Congress can pretty much do what it wants within a relatively wide range of legal subjects. While the Supremacy Clause would seem to lead inevitably to that conclusion, it’s because of McCulloch that we understand what that really means. We often think of the New Deal era case of Wickard v. Filburn as establishing the full, seemingly infinite, extent of Congress’ power to legislate on nearly anything it wishes to. But in fact it is because of McCulloch v. Maryland and the expansive reading of the Necessary and Proper Clause that Wickard was even possible, and the firmness of the national government’s power to actually govern was cemented.

 

The BUS would have been forbidden from issuing one-dollar notes. The tax schedule on larger denominations varied between 1% to 2% of the face value of the note issued. In the alternative, the BUS could have paid a flat fee of $15,000 a year in advance for all the stamped paper it wanted. Bear in mind that a laborer’s wage in 1818 was about seventy-five cents per day. If the tax seems high and arbitrarily-structured, and the restriction on issuing the highly-useful one-dollar note awkward, remember that the goal was not revenue, it was to shut the BUS down.

Note this wording — the government has a “right” to act. I’m really not on board with this construction, since I think states have “powers” and individuals have “rights.” But there it is. This is one of the germs of the concept of “states’ rights,” which as we all should know already, would become of greater importance in a different political issue, within a generation of this case.

Burt Likko

Pseudonymous Portlander. Homebrewer. Atheist. Recovering litigator. Recovering Republican. Recovering Catholic. Recovering divorcé. Recovering Former Editor-in-Chief of Ordinary Times. House Likko's Words: Scite Verum. Colite Iusticia. Vivere Con Gaudium.

31 Comments

  1. Great stuff Burt. You learned me real good.
    It is interesting how we are still having some of the same arguments 200+ years later. Its almost like there was no one obvious meaning the sainted Founders left us that should be as simple as pie to follow.

  2. This is an awesome essay.

    “…just as Marshall finds implied powers for the Federal government, he sets up here the idea that there are also implied restrictions on powers — implied restrictions on state powers, in this case.”

    This makes my head explode.

    The 10th was written so that, if there were a question on these things… ah, you know what I’m going to say. Still. That’s really irritating.

  3. Combined with the intellectual background that there are such things as “implied powers” without which the explicitly-enumerated powers would not make sense, and the further concept that as a sovereign government, the Federal government can do things that sovereign government have always been able to do, Marshall determines that indeed, if Congress thinks it is necessary and proper to pursue some other enumerated goal by chartering a bank, it can do so. Since the Bank was created to handle the government’s money, and the money in turn pays for things like regulating interstate commerce, paying for the Navy and the post office, and all the other things the Congress can explicitly do in Article I Section 8, the Bank is a “necessary and proper” tool to pursue those ends.

    What distinction is there between this and the need for a sixteenth amendment? I mean, could they have just said “Hey, we need an income tax to effectively charge our duties”?

    I have an idea of what the difference might be, but I don’t know if I am off-base.

    • Article I, Section 9 provides, in part, “No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.” Because an income tax is not proportionate to the results of the census but rather dependent upon the income of the individual taxpayer, there is an explicit prohibition against Congressional imposition of an income tax, so the Constitution needed amending before this device can be used.

      • Though it was tried a few times before the passage of the 16th (the civil war were it was not challenged (I think) and at the very end of the 19th century where it was (and was struck down))

  4. This was quite interesting Burt. I knew absolutely nothing about the BUS before, and I don’t know a whole lot about SCOTUS decisions (outside of those from the past few years). Thanks for writing this.

    By the way, considering a recent comment thread, this was my favouritve part:

    “…Federal government financed the proposed and failed invasion of Canada”.

    (Though, to be pedantic, it should read “British North America” or, perhaps, “the Canadas” rather than “Canada”).

    • Since my college added hockey and lacrosse we’ve been bringing in a large number of Canadian students. I’ve been surprised to find that most of them are unaware that we invaded them in the War of 1812. Of course vanishingly few of my U.S. students are aware of it, either.

      • This year, the government is putting on a real push to publicize the war (200 years, and all). It’s been noted that the government information isn’t always 100% correct.

        • Ah, they’re just trying to stir up anti-American sentiments, aren’t they? Everybody hate us. We’re the most picked on country in the whole world. And all we want to do is help everyone! Why is everybody so mean to us?

    • “British North America” would have been more accurate, I agree. I used the phrase “Canada” because that seemed to me to be the phrase most likely to be readily understood by most of the readership.

      I’ve not heard the phrase “the Canadas” before, could you expand on that? (I get to learn stuff here, too.)

      • “The Canadas” is not a term I had heard before either… but it has now made it into the rotation.

      • I think it had to do with British North America being divided into an “upper Canada” and a “lower Canada.” One was present-day Ontario and the other was present-day Quebec, although I get confused as to which was which.

        • “Lower Egypt” is the north and “Upper Egypt” is the south, because the Nile flows from south to north.

          The dominant commercial transportation vector in Canada in the early 19th century could only have been the St. Lawrence River, which flows generally from southwest to northeast. So it seems to me like Ontario would be “upper” and Quebec would be “lower.”

          • You’re probably right. Too bad my knowledge of Canadian history pretty much ends and begins with Toronto coal dealers from 1880 to 1940.

          • There was also a New South Wales and New North Wales in there somewhere, though I can’t remember which one came first.

  5. Awesome post, so it seems so petty to ask this (but I will anyway): is the BUS Bobba Fett John Jones or John James? Both names seem to be used in your essay.

    • Not petty at all and I’m very happy for the spotting of the mistake so thank you. This is what happens when you write something bit by bit over the course of many weeks; you forget the mistakes you made previously and they just fade into the background.

      The informer who filed the lawsuit was named James; I’ve corrected this in the text.

  6. Ask and I shall receive, eh? And there you were leading me on to think it was going to weeks, months, perhaps year(!) until the next installment, rather than only a few days. A sly man you, Counselor Likko.

    This is indeed an excellent essay. The historical context and the clear explanation of the politics behind the decision–not only the partisan politics, but the big-picture-about-the-meaning-of-the-nation politics–are tremendous strengths in making this case understandable.

    There are essentially two ways to teach a Constitutional Law course. One is to focus solely on the text of the decisions, treating their logic as essentially internal. The other is to go further and explain the political debates and pressures that inform and shape the decisions. The latter is, of course, the better way, and I suspect you would do an excellent job teaching that course.

  7. “Although the term did not yet exist, the sorts we would today call ‘strict constuctionists’ would have had their heads explode upon reading the phrase ‘incidental or implied powers.'”

    Is “strict constructionist” really of such recent vintage? I had thought “strict” and “loose” constructionist were coined around the time of the debate over the first bank. At least, that is the way most of the textbooks I have read seem to talk about it. Of course, I wouldn’t be all that shocked if the textbooks were wrong.

    • As I understand it, those terms first came in to play in the 1850’s as part of the pre-civil war political tensions and did not really enter public dialogue until the 1950’s when the civil rights movement was beginning to build up a significant head of steam. But that subject would bear further research and inquiry.

  8. This is just outstanding. Have you considered, when you’re done here with the series, putting them together and publishing them? For, you know, money? I think you should consider it.

    • I was thinking this also. It could be a really good companion book to a standard casebook.

    • Why, yes. Yes I have. My hope that there would be a reasonable audience for a book of this nature is a significant plank in the “Burt Likko would like to write more and litigate less” career platform.

  9. Amazing stuff. It’s far and away clearer and more informative than any textbook I’ve ever read on the subject (that is, history texts; I’ve never studied law.)

  10. Finally had the time to sit down and read this all the way through. Brilliant. I learned a great deal, and posts like this are both a treat and a genuine service to readers.

  11. One of the things that I find interesting about this is that this is a very early instance of a private attorney general type of action.
    I believe the qui tam actions of the Lincoln Law would expand on that considerably. These days, most states have some form of private attorney general statute.

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