In 1791, the U.S. government created the first national bank for the country. During this time, a national bank was controversial because people had different opinions about what powers the national government should have. Alexander Hamilton believed that the national government had the power to create a new national bank. Thomas Jefferson believed that the national government did not have such a power. When Thomas Jefferson was president, he did not renew the national bank's charter. After the War of 1812, President James Madison decided that the country needed a national bank, and he asked Congress to create a Second Bank of the United States in 1816.
After President Madison approved the bank, many branches were opened throughout the country. Many states did not want the new bank branches to open. There were several reasons why the states opposed these national banks. They competed with the state banks, many national bank managers were thought to be corrupt, and the states believed that the national government was getting too powerful.
Maryland tried closing down the Baltimore branch of the national bank by passing a law that forced all banks that were created outside of the state pay a $15,000 tax each year. James McCulloch, who worked at the Baltimore Branch, refused to pay the tax.
The State of Maryland took McCulloch to court saying that Maryland had the power to tax any business in its state. Luther Martin, a lawyer for Maryland, said that if the national government had the power to regulate state banks, then Maryland had the power to regulate national banks. He also said that the Constitution does not give Congress the power to create a national bank.
After McCulloch was convicted of violating the tax statute and fined $2,500, he appealed the court's decision to the Maryland Court of Appeals. His lawyer argued that creating a national bank was a "necessary and proper" job of Congress. He stated that many of the powers of the national government are not written in the Constitution, but are necessary for the national government to do its job. Also, he claimed that Maryland could not place a tax on the national bank because the tax would not let the national bank do its job.
The Maryland Court of Appeals agreed with the lower court's decision. McCulloch then appealed to the Supreme Court of the United States, led by Chief Justice John Marshall.
Questions to Consider
- What are the advantages of establishing a national bank? Article I, Section 8, Clause 18 of the Constitution to determine which functions of Congress might be helped by such a bank.
- Why would the states feel uncomfortable with a national bank?
- In your opinion, does the U.S. government have the power to create a national bank? Why or why not? Examine the enumerated powers in Article I, Section 8, Clause 18 to support your answer.
- If the United States does have the power to create a national bank, does Maryland have the power to tax the bank? Why or why not?
- Why do you think the Supreme Court of the United States heard the case?