In 1791, the first Bank of the United States was established to serve as a central bank for the country. At the time it was created, the government was in its infancy and there was a great deal of debate over how much power the national government should have. Some people, such as Alexander Hamilton, argued for the supremacy of the national government and a loose interpretation of its powers, which would include the ability to establish a bank. Others, such as Thomas Jefferson, advocated states' rights, limited government, and a stricter interpretation of the national government's powers under the Constitution and, therefore, no bank. While Jefferson was President, the Bank's charter was not renewed.
After the War of 1812, President James Madison determined that the country could use the services of a national bank. In response to Madison's suggestion, Congress proposed a Second Bank of the United States. President Madison approved the charter and branches were established throughout the United States.
Many state leaders opposed opening branches of this bank within their boundaries for several reasons. First, the Bank of the United States competed with their own banks. Second, the states found many of the national bank managers to be corrupt. Third, the states felt that the federal government was exerting too much power over them.
One state opposed to the Bank of the United States was Maryland. In an attempt to drive the Baltimore branch of the Bank out of business, Maryland passed a law that forced all banks that were created outside of the state pay a $15,000 tax each year. James McCulloch, cashier of the Baltimore branch of the Bank of the United States, refused to pay the tax.
The State of Maryland took McCulloch to court, arguing that Maryland had the power to tax any business in its state. Luther Martin, one of the attorneys for Maryland, reasoned that if the national government had the power to regulate state banks, then Maryland had the power to regulate national banks. He also argued that the Constitution does not give Congress the power to create a national bank. McCulloch was convicted by a Maryland court of violating the tax statute and was fined $2,500.
McCulloch appealed the decision to the Maryland Court of Appeals. His attorneys asserted that the establishment of a national bank was a "necessary and proper" function of the Congress and that many powers of the government are implied rather than specifically stated in the Constitution. Furthermore, Maryland did not have the authority to levy the tax, because doing so interfered with the workings of the federal government.
After the Maryland Court of Appeals upheld the original decision against McCulloch, he appealed again. The case was heard by the Supreme Court of the United States, then headed by Chief Justice John Marshall.
NARRATOR: Marshall's crowning decision came in 1819 in a case involving the Second Bank of the United States.
The bank had been chartered by Congress to work toward a more uniform system of currency and credit. Despite its name, the Bank of the United States was not a public entity, but a profitable monopoly controlled by private stockholders. It also competed with state and local banks. And in 1818, when the nation slid into economic depression, the Bank of the United States was the obvious scapegoat.
GORDON-REED: The economy is in turmoil. People are losing money. Land prices are falling. The prices of slaves are falling for people in the South. So it's a time of panic.
POWE: And in the areas that were hit hardest, the South and the West, the Bank was just hated. And you had states like Maryland and then Ohio that did everything within their power to put the Bank out of existence.
SIMON: Maryland decided to, to, fight back. So they passed a bill which taxed the Bank of the United States and its Baltimore headquarters. The cashier of the Baltimore branch -- a man named James McCulloch -- refused to pay the tax. And he said, "We're an entity of the, of the United States. You can't do that."
ROBERTS: What was really at issue in McCulloch against Maryland is which government was going to be dominant, the governments of the states or the government of the United States.
NARRATOR: The state of Maryland sued McCulloch in a Maryland court. And won. McCulloch appealed to the United States Supreme Court.
Marshall and his fellow brethren heard McCulloch's appeal in their dramatic and dearly refurbished new courtroom in the Capitol. Under the vaulted ceiling, among pillars modeled on the Temple of Poseidon, Marshall kicked Maryland in the teeth.
The chief justice dismissed out of hand a state's right to tax any national entity. "The power to tax," he said, "is the power to destroy." And Marshall took on a larger question: did Congress have the right to create a bank at all? The Constitution certainly didn't speak to the point. But Marshall did, finding implied powers in the constitutional phrase "necessary and proper," ceding to Congress the authority to regulate and encourage interstate commerce. States would have to fall in line.
ROBERTS: This was a new nation, and he was going to ensure that it had the authority that the founders intended it to have. Lincoln's famous statement, "government of the people, by the people, and for the people," is just a paraphrase of what he said in McCullough against Maryland: that this national government was founded not by the states but by the people, and for their benefit. People can debate whether Lincoln's expression is more eloquent than Marshall's, but it's the same sentiment and the same thought and, I think, born in each case from the fact that they were fighting to preserve the Union.
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