The United States first established a national bank under its first president, George Washington. Arguing in favor of robust national powers, Alexander Hamilton had convinced Washington that Congress should create the bank. This bank, however, expired twenty years after its first charter. At the time of its expiration, President James Madison had just lost the War of 1812, and America was lacking in both economic and military power and prestige. Congress, therefore, decided to charter another national bank, which Madison approved, creating the Second Bank of the United States in 1816. Two years later, the state of Maryland decided to tax any bank not incorporated by Maryland, including the Second Bank of the United States. James McCulloch, the cashier of the Baltimore branch of the national bank, who had been suspected of corrupt activity, refused the state’s taxation. In response, Maryland brought suit.
The case received widespread attention from the media. The Second Bank was represented by Congressman Daniel Webster and United States Attorney General William Wirt. They argued that the Maryland tax was unconstitutional because it infringed upon federal government activities. The state of Maryland was represented by its state Attorney General and Constitutional Convention delegate Luther Martin. Martin and his team argued that the Second Bank was unconstitutional and that states held the power to tax whoever they wanted. The Supreme Court was asked to decide first if the Second Bank of the United States was constitutional, and second if Maryland’s taxation of the bank interfered with federal powers held in the Constitution.
To decide whether the bank was constitutional, the Court had to look at Article I, Section 8 of the Constitution, which states that “Congress shall have the power to lay and collect taxes, duties, imposts, and excises to pay the debts and provide for the common defense and welfare of the United States.” This section also includes the Necessary and Proper Clause, which gives Congress the power to make all laws “necessary and proper” to carry out its duties. The Court had to decide how it wanted to define “Necessary.”
In a unanimous opinion, the Supreme Court upheld Congress’ ability to establish a national bank and struck down the state law that taxed the bank. Chief Justice John Marshall wrote the opinion for the Court, spending much of the decision explaining how the Court interprets the Constitution as a whole. Marshall decided that the Necessary and Proper Clause allows the federal government to use any reasonable means to achieve a legitimate constitutional end. They believed this applied to the national bank. Marshall wrote that Congress holds implied powers and that without these implied powers, the country risks not achieving its constitutional objectives. The word necessary, he wrote, should not be heavily restricted and should instead be read more broadly. For example, Congress did not need to prove a physical necessity that the country may not be able to go on without a bank. The Court broadened the Commerce Clause to apply to anything which can help develop the general welfare of the people of the United States.
Marshall went even further, stating that as long as a measure isn’t outright forbidden and it is suited to fit a constitutional means, then it is constitutional. McCulloch established the Reasonableness Rule, which states that congressional action is constitutional if the ends are legitimate and within the scope of the Constitution, and the means are not explicitly prohibited. Marshall wrote that the Constitution should be an outline. It gives the power of the sword and the purse to Congress, so Marshall believed the power to incorporate a bank was implied. “Necessary and proper” was now meant to be understood as appropriate and legitimate.
In addition, the Court decided that Maryland’s tax on the federal bank was unconstitutional. Marshall famously wrote that the power to tax involves the power to destroy. While there was no federal statute that prohibited states from taxing a bank, Marshall believed it was implicit that no state should have the power to infringe on the goals of the federal government. If the Court ruled that Maryland could tax the bank, Marshall worried that states could tax all aims of the federal government, and defeat them all.
The McCulloch decision benefited wealthy Americans and caused outrage in many Jeffersonians, who advocated a narrow reading of the Constitution. Many states were resistant to the ruling, and Ohio continued to tax the Second National Bank until threatened with court action.
This decision remains one of the most impactful in American constitutional history because of the Court’s interpretation of the Necessary and Proper Clause. Had the Court ruled differently, many actions of Congress would be heavily restricted. For example, labor regulations passed in 1935 and 1974, and the environmental regulations of the 1960s and 80s, may not have been upheld. McCulloch also helped establish the supremacy of the federal government over state governments.