The story of McCulloch: banking on national power.

• Author: Farber, Daniel A.

There is no denying the importance of McCulloch v. Maryland. (1) As of April 14, 2004, it had received a total of 7,307 cites in the Westlaw computer base. Many scholars consider it the single most important opinion in the Court's history. Later national leaders "have not hesitated to make recourse to Marshall's image whenever they needed authority to confirm the legitimacy of the national government deriving from the people of the United States, to defend the independence of the federal judiciary, to support broad constructions of Congress's Commerce Clause and Necessary and Proper Clause Powers, and to justify judicial construction of the Constitution to meet the pressing issues of the day." (2) And a number of lines from the opinion are second-nature to any constitutional lawyer, such as Marshall's definition of the "necessary and proper" clause and his dictum that "we must never forget that it is a Constitution we are expounding." (3)

But much less familiar is the historical setting of the decision. Chief Justice Marshall did not write on a clean slate in McCulloch. The constitutionality of a national bank had been disputed since the early days of the Republic and involved deep questions of constitutional theory. To fully understand Marshall's opinion, we need to place it firmly into historical context. Only by doing so can we understand why McCulloch was such a controversial decision at the time. We may also be able to see how the Court's current debates over federalism relate to the vision Marshall articulated in McCulloch. (4)

HOW McCULLOCH GOT TO THE SUPREME COURT

Often, the interesting part of the development of a case relates to the lives and conduct of the parties, the litigation tactics of the lawyers, and the way that lower court proceedings contributed to the appellate decisions. With respect to McCulloch, however, the interesting background relates not to the earlier stages of the litigation but to prior controversies. When Marshall ruled on the constitutionality of the Bank of the United States, he was continuing a debate that had begun even before the Constitution went into effect. He was also contributing to a discussion of the nature of the Union and the scope of federal power that had begun with Hamilton, Madison, and Jefferson. The extensive oral arguments in McCulloch were primarily concerned with linking the case to the broad constitutional themes of this ongoing debate, setting the stage for Marshall's historic opinion. Thus, Marshall was adding a chapter to a constitutional debate begun by others.

THE BANK OF THE UNITED STATES AND THE FOUNDING FATHERS

Controversy about a national bank arose even before the Constitution was adopted. The country emerged from the American Revolution with serious inflation, along with over $450 million in debt and little prospect of paying it off. (5) Between 1779 and 1781, congressional interest in chartering a bank rose, with the goal of stabilizing the currency on the basis of the bank's notes. (6) Robert Morris, the mastermind behind the bank plan, intended to keep the bank's notes in circulation indefinitely as a form of paper money. (7) After the Bank of North America was chartered by Congress, (8) Morris tried unsuccessfully to push through Congress his scheme to convert the existing national debt into circulating bank notes, but he was unable to secure adequate funding. (9) But the Bank of North America was not a complete failure. Franklin, Jefferson, and Hamilton were among its investors and depositors, and the bank handled payments for the Continental Army. (10)

Even at this early stage, the legality of a national bank was disputed. James Wilson, soon to be an important participant in the adoption of the new Constitution, made the case in favor of the bank. (11) He argued that "[w]henever an object occurs, to the direction of which no particular state is competent, the management of it must, of necessity, belong to the United States in congress assembled." (12) For "many purposes," he maintained, "the United States are to be considered as one undivided, independent nation; and as possessed of all the rights, and powers, and properties, by the law of nations incident to such." (13) Congress was warranted in establishing a bank for a variety of reasons. Such a bank provided a reliable source of nationwide paper currency. "To have a free, easy, and equable instrument of circulation is of much importance in all countries: it is of peculiar importance in young and flourishing countries, in which the demands for credit, and the rewards of industry, are greater than in any other." (14) A bank would also provide a ready source of funds in the event of war. (15) Wilson concluded "that in times of peace, the national bank will be highly advantageous; that in times of war, it will be essentially necessary, to the United States." (16)

When the Constitutional Convention met in the summer of 1787, the question of a national bank was still on people's minds. During the debate on a proposal to empower Congress to build canals, Madison proposed that Congress also be given the power "to grant charters of incorporation where the interest of the U.S. might require & the legislative provisions of individual States may be incompetent." (17) Rufus King of Massachusetts, who was later to be a director of the first Bank of North America, (18) objected that such a provision would be divisive: "In Philada. & New York, It will be referred to the establishment of a Bank, which was been a subject of contention in those Cities. In other places it will be referred to mercantile monopolies." (19) James Wilson (already on record as supporting a bank prior to the Convention) responded that "[a]s to Banks he did not think with Mr. King that the power in that point of view would excite the prejudices & parties apprehended." (20) George Mason argued for giving Congress only the power to charter canal companies, because he was "afraid of monopolies of every sort" and "did not think [they] were by any means already implied by the Constitution as supposed by Mr. Wilson." (21) A vote was then taken on a modified motion, limiting the power to canals as suggested by Mason. The modified motion failed, killing the broader proposal as well. (22)

After the Constitution was ratified, Alexander Hamilton became the first Secretary of the Treasury. As a recent commentator observes, Hamilton's bank proposal was prompted by the need to jumpstart a foundering national economy:

The scope and insight of Hamilton's political economy was breathtaking. Suppose you were appointed Treasury Secretary of a start-up country with a poor credit history, an enormous amount of delinquent debt, both local and national, unexploited natural resources, disconnected and rudimentary product markets, and disordered and illiquid financial markets. And suppose further that your new country was "possessed of little active wealth, or in other words, little moneyed capital," what would you do? (23) Building on Robert Morris's earlier ideas, Hamilton put forward an ambitious scheme for the federal government to raise taxes through tariffs and then to refinance both the federal government's war debt and those of the states. Establishing a national bank was a key part of this scheme. Like Morris, Hamilton planned to use the bank's notes to expand the national money supply. Hamilton was successful in part of this scheme. By establishing a dependable method of financing a public debt, he put the country's credit on a firm footing for the first time. (24)

The bank was a critical part of Hamilton's economic program. It would be the government's chief fiscal agent, making it easier to collect taxes, make payments, and obtain short-term loans. Its notes would provide a national currency, and it would provide a source of capital for financing businesses. (25) This plan was modeled closely on the Bank of England, which had helped bring Britain back from the verge of bankruptcy. (26)

Opposition to the bank had several roots. Some opponents disagreed with Hamilton's view on the necessity of a strong currency, viewing national wealth as based solely on productivity rather than on the financial system. (27) Other attacks were from defenders of agrarian values, many of them former opponents of the Constitution. They rejected Hamilton's focus on commerce and feared his efforts to build national financial institutions. They believed that, like the Bank of England, an American national bank would create a powerful class of financiers, who would in turn co-opt the federal government and undermine the autonomy of the states. These agrarians were afraid that a national bank would bring on the kind of "corruption" (primarily in the form of undue influence on legislators) that they had long criticized in English society. (28) Finally, bank opponents such as Madison feared that if the bank were established in Philadelphia, this would strengthen the claim of that city to become the national capital, blocking their preferred locations on the Potomac and elsewhere. (29)

In Congress, opposition to the bank was led by Madison. He argued that the bank proposal was dubious as a policy matter. More importantly, he contended that it was unconstitutional. Congress had only limited enumerated powers. At most the bank would be convenient rather than necessary. Implication and construction could not be used to extend congressional power. Madison viewed the Bank of North America as distinguishable--technically illegal, but a wartime necessity. (30) In particular, Madison rejected the necessary and proper clause as a basis of authority for the bank:

The essential characteristic of the government, as composed of limited and enumerated powers, would be destroyed: If instead of direct and incidental means, any means could be used, which in the language of the preamble to the bill, "might be conceived to be conducive to the successful conducting of the...