This article is written by Charu Kohli. The article deals with the case of McCulloch v. Maryland (1819) wherein the struggle for power control between the States and the Federal Government of the United States of America is underlined. To understand the principle of the Proper and Necessary Clause present in the law of the land, dive deep into the article. 

Introduction

The case of McCulloch vs. Maryland (1819) is a landmark judgement of the United States that helped establish the relationship between the state and the federal government while also defining this relationship in great detail. It is deemed to be the case that culminates within itself one of the earliest controversies in establishing the defined lines of the power struggle between the centre and the state. 

The case highlights the nature of banks established by the Centre and the rule of taxation over them. It further centres on the question of power dynamics between the two entities that are the centre or federal unit and independent states in the federal structure of the United States of America. The case at hand gave the answers to grave questions like the power of Congress to establish a bank at the national level and whether such a bank can have a tax imposed on it by another state. 

Details of the case 

  • Case Name: James McCulloch vs. The State of Maryland, John James
  • Case No.: 17 U.S. 316 (1819)
  • Equivalent Citations: McCulloch vs. Maryland Decision; 3/ 6 /1819; Engrossed Minutes, 2/1790 – 6/ 7 /1954, DC, 17 U.S. 316 4 Wheat. 316; 4 L. Ed. 579; 1819 U.S. LEXIS 320; 4 A.F.T.R. (P-H) 4491; 42 Cont. Cas. Fed. (CCH) ¶ 77,296Records of the Supreme Court of the United States, Record Group 267; National Archives Building, Washington
  • Acts Involved: The Constitution of the United States of America
  • Important Provisions: Article 1 Section 8- Necessary and Possible Clause
  • Court: Supreme Court of United States of America
  • Bench: Chief Justice of Supreme Court John Marshall, Associate Justice Bushrod Washington, Associate Justice William Johnson H. Brockholst Livingston, Associate Justice Thomas Todd Gabriel Duvall and Associate Justice Joseph Story
  • Petitioner: James W. McCulloch
  • Respondent: John James 
  • Judgement: Unanimous decision on March 6, 1819

History of McCulloch vs. Maryland (1819)

The case revolves around the proposal made by the Secretary of the Treasury in Washington, Mr. Alexander Hamilton, in the first year of his tenure. The proposal laid out by Hamilton talked about the need for a Second Bank of the United States of America, as the first one had ended as per its charter. The objective of the proposal was to ensure that the after-effects of the 1812 war on the economy could be dealt with and the money could be brought into circulation once again. This proposal got serious consideration from various members and officials. 

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Later, this proposal was taken up by the Congress, which discussed it in great detail as to whether the authority to create a nationalised bank lies within their ambit or not. This idea of Hamilton was based on the plan of nation and economy-building by paying off the debt that was incurred due to the Revolutionary War. It was to be achieved by the creation of national banks, which would help the government to not only raise taxes at the central level but also pay off the debts, make the payments that were still due, and also hand out short-term loans so as to bring the economy into motion.

The proposal detailed the creation of a national bank by the Congress and turning it into a corporation, which would be bestowed with certain benefits to exercise its authority by the Congress itself in the year 1816. Congress later accepted the notion, and after discussing the matter with various cabinet ministers, President Washington eventually signed the Bill. However, the Attorney General of the time, Mr. Edmund Randolph, and the Secretary of State, Mr. Thomas Jefferson, believed it to be an unconstitutional act of Congress and did not support the motion for the creation of the nationalised bank. They were of the view that the power to create banks at the national level was not ascertained by the Constitution and, therefore, felt this plan was violating the basic framework of the nation itself. 

However, the First National Bank of the United States was established in 1817 with its headquarters in Philadelphia, as the motion had received majority support from the Congress and the President had assented to the bill. Further, the federal bank started establishing various branches in several states of the USA and one such branch was established in the Baltimore area of Maryland.  

Importance of the case 

The Supreme Court of the USA, in its ruling in the case of McCulloch vs. Maryland, underscored a fundamental principle of American federalism. It states that there exists a supremacy of federal law over state laws when there is a conflict between the two of them. Chief Justice John Marshall, while delivering the unanimous judgement of the case, asserted that the powers granted to Congress are derived from the citizens of the United States of America and not the individual states. The case, in simple words, established that the sovereignty of the state cannot supersede the authority of the federal entity, i.e., the National Bank of America. This landmark judgement by the Apex Court of the nation solidified the balance of power between the centre and the state and ruled heavily in favour of the federal government of the state. This decision changed the course of the narration and was in contrast with rulings that leans more towards the rights of the State over the federal entity, like in the case of United States vs. Lopez (1995). The case of McCulloch vs. Maryland has since served as a pivotal precedent that helps the judiciary guide subsequent judicial interpretations. It has helped establish not only the rule of the federal-state power dynamic or the flow of power between the two entities but also talked about how the two influence each other and how the conflicts between state and federal laws are resolved in American jurisprudence.

Facts of McCulloch vs. Maryland (1819) 

In the month of May of 1818, there was a lot of hostility towards the national bank by a number of states because of the economic panic in society. Due to the competition between the state and the national banks and the piling up of unpaid loans, the states started levying taxes on the Federal Bank. In the same year, the state of Maryland passed an act imposing a $15,000 tax on non-state banks. This tax was to be paid annually by all the banks that were operating in the state but were out-of-state banks. The term ‘out-of-state banks’ refers to those banks that were incorporated in any other state apart from the state of operation and the banks whose charter as well as headquarters are based in another state. 

The act, which appeared to be neutral at the forefront, actually targeted the National Bank of the United States of America only since it was the only out-of-state bank in Maryland at that time. That was when the cashier named James McCulloh of the Baltimore Branch of the bank refused to pay as had been levied by the State. Therefore, the Maryland state went ahead and filed a case against James McCulloh to get their dues recovered. The case was therefore filed by Maryland in the State Court in order to get the taxes paid. 

Maryland won the case in both the State Trial Court and the High Court. Both courts directed James McCulloh to pay the taxes as per the directions of the state of Maryland. However, the cashier at the Baltimore branch, Mr. McCulloh, filed an appeal petition requesting review of the decision by the High Court and the Supreme Court of the United States of America. 

Issues raised 

  • Does the State of Maryland have the power to levy taxes on the National Bank, Baltimore branch of the United States of America, which was established by Congress in the year 1818?
  • Whether the federal unit has the constitutional power to create the National Bank or not? 
  • Whether this National Bank can be taxed by the state government or not?

Principles and concepts involved in McCulloch vs. Maryland (1819)

Principle of Necessary and Proper Clause

The principle of power that was used by the Congress to initiate the procedure of incorporating a national bank and further establishing one was the principle of the Necessary and Proper Clause. This clause is situated as the 18th clause under the Constitution of the United States under Article 1, Section 8. It further states that the Congress, i.e., the elected body of representatives by the citizens of the nation, has the power to make any and all such laws as may be necessary. 

The laws which can be created are those that are necessary, proper and needed by the Congress to carry out the execution of their pre-established powers, which include the listed powers as well as the ones that are vested by the basic framework of the nation. In simple terms, it means that the Congress has the right to make any law that is a requisite in order for them, any state, or any office under them to exercise the powers already vested in the Constitution of the United States. In other words, if the Constitution does not prohibit any sort of power and the spirit of the Constitution is upheld in the question of law, then the law made will be deemed to be applied and it will stand. 

However, such power authorised and laws made should be of a necessary and proper nature, as the name of the principle also suggests. This clause allows the Congress to make laws that can help them execute and efficiently carry out the execution of the power. 

Power to tax can be the power to destroy

The Chief Justice of the Supreme Court of the USA  gave the statement that the ‘power to tax can be the power to destroy’ and by this, he meant that the power of the states of the USA to levy a tax on a federally created entity like the national bank might destroy the federal entity itself. Chief Justice John Marshall basically stated that there is no right to claim by the states as they cannot destroy the federal entity or override the entity created by the centre. 

Federal law over state law

In the United States of America, the principle that federal law takes precedence over state law as in centre over state is enshrined in the Supremacy Clause of the U.S. Constitution, found in Article 4, Section 2 of the Constitution. The clause states that the Constitution, along with federal laws and treaties, constitutes the “supreme law of the land.” Essentially, this means that when federal laws are in direct conflict, federal law takes precedence over conflicting state laws and supersedes state laws.

The Supremacy Clause provides the legal basis for ensuring the uniform and consistent application of federal law across all states and the provision allows for rule by the representatives of all the states who have a position in the centre. It lays down the law that state governments may not enact laws that contradict or interfere with federal laws, policies, or constitutional provisions of the United States of America. This principle is critical to maintaining a consistent national legal framework and preserving the federal government’s authority in areas where it has constitutional power, such as trade, immigration, and defence. 

Courts play a key role in interpreting and applying the Supremacy Clause, as was done by Justice Marshall in the case. When conflicts arise between federal and state laws, courts typically resolve them by invalidating state laws that conflict with federal or constitutional provisions since the state only talks about their individual interests, whereas the centre or federal unit talks about the smooth functioning of the whole nation and its citizens. This mechanism ensures that federal law continues to prevail in areas where the federal government has jurisdiction, while states can continue to legislate in areas where the federal government has not explicitly reserved power as per the lists in the US Constitution.

Overall, the Supremacy Clause emphasises the hierarchical relationship between federal and state law by ensuring the primacy of federal power while respecting the autonomy of states within their constitutional spheres of influence.

Contentions raised 

Petitioner’s contentions

Section 8 of Article 1 of the Constitution of the United States of America clearly states-

“The Congress shall have 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.“

The power of the Congress to create a national bank therefore falls under the category of the ‘proper and necessary clause’, whereby it states that the Congress can do any act or create any law or rule in order to execute the function as per the Constitution of the United States. The term necessary here has been contended to refer to anything that is convenient or even useful to follow up on the express powers of the Congress and the term proper means that such a power should be in accordance with the Constitution and should not overpower it. 

The petitioner stated that the bank, once established as a nationalised bank, carries a lot of execution powers, namely taxation and commerce powers, which is why the Bill for the same was adopted by Congress. 

Appellant’s contentions

Maryland contended that there is no federal power with the Centre to create a national bank. The power is not given in the Constitution and therefore, it does not exist. So the question of taxation imposed by the state on the bank is of an unproblematic nature since it is the right of the state to levy such a tax on corporate bodies functioning in their jurisdiction. 

They further argued that the phrase of the principle ‘necessary and proper’ holds two words necessary as well as proper, which means that the Congress is authorised to make those laws that are absolutely necessary to carry out the express powers as mentioned by the Constitution. 

Here, the creation of a national bank was deemed not  necessary or even proper by Maryland; they contested that the clause, therefore, should not be applied in his case. They believed that the creation of a National Bank would lead to effectuate power, which authorised the bank to do almost anything and that is a problem in the commerce sector. 

Judgement in McCulloch vs. Maryland (1819)

Chief Justice John Marshall was of the view that the bank established by the centre was constitutionally formed. He gave the judgement that the Congress had the power and they possessed the authority to go forth and create a national bank in the state. Further, the judgement stated that the states do not possess any authority to levy any sort of tax on the national bank since it is a federal entity. 

Justice Marshall, while observing the question of the power of Congress, clearly stated, “In considering this question, then, we must never forget that it is a Constitution we are expounding.” Mr. Marshall held that the creation of the bank was well within the Necessary and Proper Clause Principle, which was used by Congress to support their arguments. He authored the unanimous decision wherein he acknowledged that the scope of the federal government’s power is limited to what is written by word in the Constitution of the land. However, the Constitution itself has also guaranteed them the power to go beyond what is written with black ink in times of need. The judgement clearly stated that Congress has not only enumerated powers but implied powers as well in order to maintain the smooth functioning of the State and its citizens. Marshall states that when the Constitution authorises a specific objective, Congress should also be granted implied means to achieve that objective. He used the Necessary and Proper Clause as a principle in order to support his argument, which says that Congress can make all laws necessary and proper for executing its enumerated powers.

Justice Marshall did not agree with the interpretation of the term ‘necessary and proper’ as defined by Maryland, but rather applied the interpretation of the petitioner. He stated that the term necessary and proper is meant to state something that is needed and required for the performance and execution of any duty by Congress in relation to the law of the land. 

He also held that the federal bank, as created by Congress, is necessary and useful for distributing as well as raising money under Article 1, Section 8. This will lead to Congress being able to collect taxes, and expenditures for public welfare, borrow money on credit by the United States, regulate commerce with foreign nations and between states, and raise armies with the help of the Federal Bank structure.

Moreover, on the question of whether taxation can be levied on the Federal Bank, Justice Marshall held two principles in relation to the United States of America, ‘the power to tax involves the power to destroy’ as well as ‘federal laws are supreme over the laws of the state’. He further held that the power given by the Constitution gave power to the people not the state and it was always the people and the citizens of the United States of America who were superior and since the representation of the people was the Congress in the Center, the superiority was held directly by the Congress and not the State. This meant that the state and its laws cannot be superior to an institution or entity that is federally created. It held that it would be inappropriate for the national bank, which was created in order to serve the nation entirely, to just be subjected to the taxation laws of a single state like Maryland. 

Analysis of the case 

The Hon’ble Supreme Court of the United States of America reversed the judgement that was delivered by the High Court of Maryland. This judgement gave the Congress the implied power to implement the express constitutional power so as to have a smooth functioning state. The principle of, “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” was upheld in the case. 

Further, the Hon’ble Court held that even though the power of the Congress does not extend to the creation of a national bank or to the chartering of a national bank since these powers are not enumerated in Article 1, Section 8 of the Constitution of the United States of America, clause number 18, which talks about the Necessary and Proper Clause principle, is to be held as important. Here, it provides the federal government with the power to even make laws that are allowed, that are necessary, and those that are proper in order to execute any law by them. For example, the act of borrowing money or issuing currency led them to give way to the creation of the bank at the national level as a means to an end. 

The judgement by the Chief Justice is based on the 1790’s argument of Hamilton, who was of the view that the Congress, as the federal power body, can derive its power from the Necessary and Proper Clause. The view was that the power of the Congress does not always need to be derived directly from the Constitution; rather, sometimes it can be inferred or even derived from the basic framework of the law of the land.

This opinion was upheld in the case; however, the State of Maryland was following the Jeffersonian approach. It stated that the measure as adopted by the federal entity must be of such nature that it is indispensable and absolutely necessary; otherwise, it will not be revered as constitutional. 

Aftermath of the case 

This landmark judgement has expanded the concept of federal supremacy and held that the centre has the power to establish National Banks for the welfare of the community at large. The judgement of the Hon’ble Court also led to the states not being able to impose any tax on the nationalised bank. This resulted in the federal government having the power to rule the nation as a whole without being subjected to state limitations and laws. 

However, while the decision greatly expanded federal power, it also affirmed limits on that power by stating that the federal government can only act within its enumerated powers and those necessary to execute them. They categorised as to what is necessary and proper should only be applied in the realm of  federal power and prohibited the federal government from acting arbitrarily. Further, this precedent has given way to a lot of landmark judgements and one such case is Gibbons vs. Odgen (1824), whichwasn built upon the observations of the case at hand. 

Conclusion 

Many academicians have tried to analyse the judgement and the conclusion came that there are 3 positions on the power of Congress that are not written in the Constitution of the United States of America and they are:

  • The Hamilton View, which is sometimes deemed to be the liberal view. This view basically states that the new law made or rule established must be a matter of expediency or convenience. This allows Congress to do as it wishes for the smooth functioning of the state at large.
  • The Jefferson view, which in this case aligns with the Maryland State, upholds that for a law or rule to be deemed constitutional, it must be a requisite by Congress or any office under them. Such a rule must be indispensable, logical and necessary for the proper functioning of the Federal Unit. 
  • The third position is that of in-between which is now mostly used in the State. It upholds that a law to be deemed accepted in society must be more than just a matter of convenience for the centre and rather should be necessary and proper in nature. 

In this landmark case of McCulloch vs. Maryland, the Supreme Court of the United States has not only recognised the federal government’s superiority over state laws but also upheld the necessary and proper clause that acted as a significant precursor to the American Constitution. Chief Justice John Marshall’s opinion stated that the federal government’s powers are implied and need to be executed by the Constitution’s enumerated powers, which include the power to create a national bank. By rejecting the attempt by Maryland to tax the Second Bank of the United States, the Court demonstrated the superiority of federal laws over local laws and maintained the integrity of national institutions. This important decision not only defined the distinction between federal and state authority but also created a mechanism that would be used by subsequent courts to maintain a proportional system of power. McCulloch vs. Maryland continues to be a foundation of American law, its rulings have influenced the interpretation of federalism and have demonstrated the crucial role of the federal government in the country’s government.

Frequently Asked Questions (FAQs)

Who was Chief Justice John Marshall of the Supreme Court of the United States of America? 

Chief Justice John Marshall authored the judgement in the case of McCulloch vs. Maryland (1819). Before stepping into the legal arena, he was a Marshall in the Revolutionary War. During his time in the military, John associated himself with the American identity first and then with the identity of his state, which was Virginia. 

What is the federal form of government in the United States of America?

The United States of America has a federal form of government with a power division between the centre, i.e., the national government and the independent states. Here, the powers are divided between the centre and state as per the lists and the tenth schedule of the Constitution. The demarcation of power allows the states to remain independent at the bottom level and take their own decisions, and the centre here is empowered to regulate the workings between the states.   

References

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