McCulloch v Maryland (1819)

Part One - Its History & Proceedings

The First Bank Of The United States

Following the ratification of our Constitution, our young Republic faced serious financial problems. Alexander Hamilton, Secretary of the Treasury proposed a solution to address these problems: the federal government should charter a national bank. This institution would establish credit, accept deposits and lend money to the new national government.

Article 1, Section 1 of the new Constitution states that “All legislative powers herein granted shall be vested in a Congress of the United States.” In other words, if a legislative power is not enumerated somewhere in the Constitution, the Congress does not have that power.

Most of Congress’ enumerated powers can be found in Article 1 Section 8 which lists 17 separate clauses. The power to incorporate a bank cannot be found in the first 16 clauses of article I, Section 8 Hamilton’s proposal does not require the collection of direct taxes. So that power is out. Nor does the bill borrow money or regulate commerce All of the other express powers are likewise out.. Only clause 17, the necessary and proper clause could possibly empower Congress to incorporate the bank

Member of Congress and officers in the executive branch debated about an important Constitutional question - Is it necessary and proper for Congress to charter a bank in order to execute its powers to collect taxes, borrow money and regulate commerce?

Unlike the Federal Reserve Bank that exists today, private investors held stock in the first national bank. Was it proper to grant monopolies to such favored individuals? Opponents of the bank feared creating a privileged, monied aristocracy of the type that existed in Europe. These populist concerns created a white-hot political debate. Soon the controversy about the bank’s constitutionality focused on Congress’ power to grant such a monopoly.

Representative James Madison delivered an important speech to Congress. He argued that the power to incorporate a bank was not incidental to any of the enumerated powers. Therefore the power to charter the bank was a “great and important power” that needed to be enumerated in the text of Article I.

In addition, Madison contended it was not necessary to incorporate a bank in order to collect taxes, borrow money or regulate commerce. He concluded that Congress lacked the power to incorporate the bank.

After Congress approved the bank, President Washington asked member of his cabinet for their opinions on it’s Constitutionality.

Thomas Jefferson, the Secretary of State took an even more stringent view of “necessary” than did Madison. Jefferson contended that “When the Constitution restrained Congress to the necessary means of executing it’s powers this was limited to those whose means without which the grant of power would be nugatory.” He continues “Because it’s goals can be accomplished in other ways, it was not necessary to charter a bank.”

Alexander Hamilton, who first proposed the idea of a national bank strongly rejected Jefferson’s strict reading of “necessary.” Instead he defined necessary as “needful, requisite, incidental, useful or conducive.” In other words, if it is useful for Congress to charter a bank in order to collect taxes or borrow money, then Congress has the power to do so.

But while Hamilton rejected any test of constitutionality that rested on the degree in which is measure is necessary, or the more or less necessity or utility of a measure he did not go so far as to say that Congress had the discretion to adopt any means that in its sole judgement would be convenient. Instead Hamilton offers the following test:

“The relation between the measure and the end; between the nature of the means employed toward the execution of a power, and the object of that power must be the criterion of Constitutionality.”

Today we would call this “means” and “Scrutiny”.

President Washington would either agree with Hamilton’s opinion on Constitutionality or he agreed with Jefferson that, because the decision was a close one, he should defer to Congress; because in 1791 he signed the bill onto law chartering the first bank of the United States it would remain in business for two decades.

The Second Bank Of The United States

In 1816 Congress chartered a second bank of the United States.

That the bill was signed into law by President James Madison has given rise to the question of whether he had changed his mind about the meaning of the “Necessary & Proper Clause” from what he articulated as a Congressman. In private correspondence Madison defended the consistency of the approach by contending it was proper of him to defer to the judgement of several Congresses on the question of whether the bank was truly necessary to execute its powers, especially given what he said was the bank’s almost necessity., But the bank soon became very unpopular.

In 1818 the Maryland General Assembly imposed a tax on the branch of the Bank of the United States in Baltimore. The bank’s cashier, James William McCulloch, refused to pay the tax. Maryland sued McCulloch to recover the money. The Maryland Court of appeals ruled for the State. McCulloch then appealed the case to the Supreme Court, arguing that a State cannot tax a federal institution. However, before the Court could decide if the State tax was Constitutional, they had to first decide if Congress had the power to charter the federal bank in the first place.

The debate two decades earlier between Jefferson & Madison on one side and Hamilton on the other would now be resolved by the Supreme Court in McCulloch v Maryland. Chief Justice Marshall, writing for the court rejected Maryland’s very narrow reading of “necessary”… Though Marshall did not cite Hamilton, the Chief Justice copied several portions of the Treasury Secretary’s opinion of the bank almost verbatim. Hamilton, defined necessary as “needful, requisite, incidental, useful or conducive.”

The Court’s Opinion

Marshall used those 4 precise words and added a fifth “convenient” at several juncture in his opinion, a term that Hamilton did not use as a synonym for necessary. That is, Marshall could be read as saying that Congress could do whatever is convenient in order to execute its other enumerated powers,

Indeed, Marshall described the creation of the bank as a “convenient, useful and essential instrument in the prosecution of fiscal operations and an appropriate mode of executing the powers of government.”

He rejected the notion that it must be an absolute, physical necessity. Marshall put forward the following test, which to this day is relied on by the Supreme Court to determine the scope of Congress’s implied powers:

“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”

Arguably the criterion of means, which are plainly adopted to the ends, includes the sorts of means and scrutiny that has been advocated by Hamilton, but this is not entirely clear.

The bottom line is the Court in McCulloch held that the necessary and proper clause gave Congress a power sufficient to incorporate the bank. As a result, Maryland cannot tax the federal bank because “The power to tax involves the power to destroy.” Marshall rejected the objection that the Constitution did not specify powers to create a bank on the grounds that such specificity would “partake of the prolixity of the legal code.”

Instead he declared “We must never forget that it is a Constitution we are expounding.” Adding “Our Constitution is intended to endure for ages to come, and consequently, to be adapted to the varied crises of human affairs.”

In other words to avoid soon growing outdated, the Constitution speaks in more general terms. Marshall’s opinion in McCullough became so controversial that he defended it in the editorial pages of two Virginia newspapers in a series of pseudonymous columns. To rebut the charge that the Court had read the Necessary and Proper clause authorizing “unlimited power of Congress to adopt any means whatsoever” Marshall highlighted a portion of his opinion that does not always receive attention.

The Court would have to invalidate a law “should Congress, under the pretext of executing its powers, pass laws for the accomplishment of objects, not entrusted to the government”

Thirteen years later in 1832, President Andrew Jackson vetoed renewal of the National Bank. Because, unlike Marshall, Jackson found the bank was not necessary to the execution of Congresses’ enumerated powers and was therefore unconstitutional.