Which of the following explains the outcome and significance of the mcculloch v. maryland case?

Annotation

Primary Holding

States cannot interfere with the federal government when it uses its implied powers under the Necessary and Proper Clause to further its express constitutional powers.

Facts

The U.S. Congress created the Second Bank of the United States in 1816. A year later, the Bank opened a banch in Baltimore, Maryland, where it carried out all the normal operations of a bank. Its legitimacy was based solely on the applicability of the U.S. Constitution to Maryland. In 1818, however, the Maryland legislature voted to impose a tax on all banks within the state that were not chartered by the legislature. The Second Bank of the United States refused to comply with the law, resulting in a lawsuit against its head, James William McCulloch. The state successfully argued on appeal to the state appellate court that the Second Bank was unconstitutional because the Consititution did not provide a textual commitment for the federal government to charter a bank.

Opinions

Majority

• John Marshall (Author)
• Bushrod Washington
• William Johnson, Jr.
• Henry Brockholst Livingston
• Thomas Todd
• Gabriel Duvall
• Joseph Story

In this unanimous decision, Marshall observed that the Second Bank was no different from the First Bank of the United States, of which the constitutionality had not been challenged. Echoing the decision in Martin v. Hunter's Lessee, he also noted that the people rather than the states were responsible for ratifying the U.S. Constitution and thus taking away a measure of sovereignty from the states. He did not find it necessary to establish a textual basis in the Constitution that specifically addressed banks.

The most notable section of Marshall's opinion concerned the Necessary and Proper Clause. He rejected the state's argument that this clause was confined to authorizing only laws that were absolutely essential to carrying out its enumerated powers. Marshall felt that a broader interpretation was warranted, since the clause was not placed among the limitations on Congressional authority and thus should be viewed as an expansion on its authority. As a result, he redefined the meaning of "necessary" as something closer to "appropriate and legitimate," covering all methods for furthering the objectives covered by the enumerated powers. Moreover, Marshall struck down the tax as applied to the Second Bank as unconstitutional.

Case Commentary

Later commentators have continued to challenge the logic in Marshall's opinion, some of them suggesting that it infringes on the Tenth Amendment. However, it remains valid to the current day, and his view that the federal government derives sovereignty from the people rather than the states has been widely accepted. The decision has been influential in nations that have similar legal systems, such as Australia.

Constitutional interpretations of federalism

A quick guide to the background, decision, and impact of McCulloch v. Maryland. 

Constitutional interpretations of federalism

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McCulloch v. Maryland proved that states could not tax the federal government without rendering it weaker, and that Congress could create a National Bank.

McCulloch v. Maryland began when Maryland state wanted to pass a stamp tax on the paper that federal banks printed bank notes on. McCulloch, a banker in Maryland, said that the tax was invalid because the bank is a federal institution. Maryland took him to court.

McCulloch v. Maryland brought into question "Does Congress have the power to make a national bank?" and "Does any state have the Constitutional right to tax an agency of the U.S. government?"

John Marshall, the presider of the Supreme Court, used loose interpretation of the Constitution (the Elastic Clause) to decide that Congress can indeed create a national bank, as he deemed it to be "necessary and proper" to help the country. It was also decided that states cannot tax an agency of the federal government, with Marshall famously saying "The power to tax is the power to destroy."

On March 6, 1819, the U.S. Supreme Court ruled in McCulloch v. Maryland that Congress had the authority to establish a federal bank, and that the financial institution could not be taxed by the states. But the decision carried a much larger significance, because it helped establish that the Constitution gave Congress powers that weren’t explicitly spelled out in the document.

That decision made it possible for the federal government to expand dramatically over the next two centuries, and to take on responsibilities that the nation’s founders couldn’t have envisioned. Without McCulloch v. Maryland, Congress wouldn’t have been able to create the New Deal or Social Security in the 1930s, or enact legislation such as the Civil Rights Act of 1964 and the Patient Protection and Affordable Care Act in 2010. 

Conflict Over a National Bank

The controversy that led to the Supreme Court decision actually began several decades before the lawsuit was even filed. As the Federal Reserve History website details, in 1790, the new nation’s first-ever Secretary of the Treasury, Alexander Hamilton, wrote a report for Congress in which he advocated creation of a federal bank. Hamilton argued that a central, government-controlled financial institution, similar to the Bank of England, was important for stabilizing the young nation’s economy. He envisioned the bank issuing paper money, providing a safe place to keep public funds, collecting tax revenues, and paying government debts. He also thought it could handle private-sector commercial transactions as well.

Hamilton’s idea faced strong opposition from critics such as Thomas Jefferson, who were afraid that a federal bank would become a financial monopoly that undermined state banks. They also feared that it would favor financiers and merchants over farmers, who usually were debtors. Jefferson argued that the Constitution didn’t give the federal government the authority to form corporations such as banks. But in the end, Hamilton’s argument persuaded enough members of Congress to gain passage, and President George Washington signed the bill creating a national bank into law in 1791.

That same year, the first Bank of the United States opened in Philadelphia, and branches subsequently were established in Boston, New York, Baltimore, Charleston, Norfolk, Savannah, Washington, D.C. and New Orleans. The new bank was a public-private institution, with the federal government initially owning $2 million of its stock and private investors holding the other $8 million. But the controversy over the bank continued, and when its charter came up for renewal in 1811, it was narrowly defeated in Congress.

After the War of 1812, however, the U.S. government again found itself heavily in debt, and private-sector financiers such as John Jacob Astor joined with politicians such as Rep. John C. Calhoun to advocate for creation of another federal bank.

In 1816, Congress finally gave in, and the following year, the second Bank of the United States reopened in Philadelphia. The new bank was much more far-reaching in scope than its predecessor, providing extensive credit to farmers and businesses and financing the shipping of goods and agricultural crops both to domestic and foreign markets. The new bank was one of the biggest companies in the nation, and its clout enabled it to control the interest rates that other banks could charge to borrowers.

Maryland Attempts to Tax the Second Bank of the United States

But there was still a lot of opposition. In 1818, Maryland legislators passed a law imposing a stamp tax on currency issued by second Bank of the United States, in an effort to hinder it from doing business. In response, a cashier at the bank’s Baltimore branch, James W. McCulloch, refused to pay the tax. The state then sued McCulloch for $110, the penalty in the law for circulating unstamped banknotes in Maryland.

State officials won their case in the Maryland courts, which led the bank to appeal to the U.S. Supreme Court, which began to hear arguments in the case on Feb. 22, 1819, in a courtroom in the basement of the U.S. Capitol.

Presiding over then-seven-member court was the nation’s fourth Chief Justice, John Marshall. Marshall was a Revolutionary War veteran who had served as President John Adams’ envoy to France and Secretary of State before Adams appointed him to head the court in 1801. Marshall joined the court just weeks before Adams’ successor Thomas Jefferson was set to take over.

Both sides had high-powered lawyers to represent them. Representing Maryland was Luther Martin, the state’s Attorney General, who had served as a delegate to the Constitutional Convention in 1787. Martin had famously walked out of the Constitutional Convention proceedings because he opposed the creation of a strong central government. 

Speaking on behalf of the bank was Daniel Webster, an attorney and skilled orator who served in both the U.S. House and the Senate in his career, and was an advocate of a strong, activist federal government.

Martin argued that because the Constitution didn’t explicitly say that Congress could create a bank, it didn’t have authority. He cited the 10th Amendment, which says that any powers that the Constitution doesn’t delegate to the federal government, or prohibit the states from using, are reserved for the states or the American people. “We insist that the only safe rule is the plain letter of the Constitution,” he said, according to a transcript of the hearing.

Webster, in turn, argued that Article I, Section 8 of the U.S. Constitution, which gave Congress the power “to make all laws which shall be necessary and proper” for carrying out some power that the Constitution does spell out, was sufficient authority. Creating the Bank of the United States, Webster argued, was necessary and proper for the purpose of levying and collecting taxes, borrowing money, supporting armed forces, regulating commerce, and other crucial functions of the government.

On the question of whether or not Maryland or another state could tax the federal bank, Webster said cited the Constitution’s Article VI, which states that laws enacted by Congress “shall be the supreme law of the land,” and said it prohibited states from passing any legislation “which shall be repugnant to a law of the United States.” 

The Marshall Court Verdict

WATCH: The Legislative Branch

After the oral arguments were completed, Marshall and his fellow justices took only a few days to render their unanimous ruling, in which they adopted Webster’s position and rejected Martin’s reasoning. Marshall wrote the court’s opinion himself, as he usually did, and read it aloud to a packed courtroom.

“The subject is the execution of those great powers on which the welfare of a nation essentially depends,” Marshall said. “It must have been the intention of those who gave these powers, to insure, as far as human prudence could insure, their beneficial execution. This could not be done by confiding the choice of means to such narrow limits as not to leave it in the power of Congress to adopt any which might be appropriate, and which were conducive to the end.”

Additionally, Marshall wrote, 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. This is, we think, the unavoidable consequence of that supremacy which the constitution has declared.”

Significance of McCulloch v. Maryland

Although McCulloch v. Maryland gave the federal government wide-ranging authority, even the ruling wasn’t enough to protect the second Bank of the United States from its political opposition. In 1832, President Andrew Jackson, a vehement opponent of the bank, ordered that the federal government’s deposits be withdrawn and deposited in state banks. This order caused the national bank to lose a lot of its power and influence.

In 1834, the U.S. House of Representatives voted against renewing the bank’s charter, and it faded from existence. However, in the early 1900s, a succession of banking crises prompted Congress to revise the idea of a national bank, and in 1913, the Federal Reserve System was created.

Ultimately, McCulloch v. Maryland made possible the rise of what some have labeled “the administrative state,” in which the government employs officials to oversee many aspects of American life, from environmental issues to labor disputes.

Sources

U.S. Supreme Court, Opinion in McCulloch v. Maryland (1819)

“McCulloch v. Maryland (1819),” Constitutional Rights Foundation.

Reports of Cases Argued and Adjudged in the Supreme Court of the United States, February Term, 1819, Henry Wheaton,

The Spirit of the Constitution: John Marshall and the 200-year Odyssey of McCulloch v. Maryland, by David S. Schwartz, Oxford University Press, 2019.

“John Marshall, the Great Chief Justice,” William & Mary University Law School.

“Luther Martin,” Teaching American History.

“McCulloch v. Maryland Case Summary: What You Need to Know” by Laura Temme, FindLaw.com.

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