LIMITATION OF STATE POWER. 991 507 formed and take such measures to redress the injury done to the Constitution as the exigency may suggest and prudence justify." And again as to a supposition of repugnancy between the power of taxation in the States and in the Union, it cannot be supported in that sense which will be requisite to work an exclusion of the States. It is indeed possible that a tax might be laid on a particular article by a State, which might render it inexpedient that thus a further tax should be laid on the same article by the Union; but it is not implied a constitutional inability to impose a further tax. The quantity of the imposition, the expediency or inexpediency of an increase on either side would be mutual questions of prudence; but there would be involved no direct contradiction of power. The particular policy of the national and of the State systems of finance might now and then not exactly coincide and might require reciprocal forbearance.2 Marshall remarked, that had the authors of the Federalist been. asked "whether they contended for that construction of the Constitution which would place within the reach of the States those measures which the government might adopt for the execution of its powers, no man, who has read their instructive pages, will hesitate to admit that their answer must have been in the negative." The conclusion of the decision was, that the States have no power by taxation or otherwise to retard, impede, hinder or in any manner control the operation of the constitutional laws enacted by Congress to carry into execution the powers vested in the general government.3 1 Federalist, No. XXXIII. 2 No. XXXIII. The taxing power of the States and that of the United States were further distinguished in 1829, in Marshall's decision of the question whether States and corporations could tax stock issued 508 POWER OF STATE TO TAX. It will be observed that these definitions of the taxing power simply distinguished between the taxing power of the States and that of Congress, a distinction which practically meant that the power of the States to tax was limited strictly to those subjects over which they had complete control, and that no tax could be levied by a State upon any function, agency or creation of the National government. None of these decisions limited the right of the State to tax within its own jurisdiction, there it was supreme and the power to tax was exercisable at the discretion of its legislature under whatever limits might be prescribed in its constitution. The eighteenth century State constitutions were almost wholly silent on the subject of taxation, but before 1850, some of the States had incorporated separate articles on taxation and finance in their constitutions.1 One does not proceed very far in the constitutional history of the period now under review before he discovers that the general and practically unlimited grant of the power of taxation in the Constitutions in force, was greatly abused. During the last decade of the period the States in the Mississippi Valley began to limit the amount of State indebtedness,2 and empowered their local governments, the townships and counties to regulate their own finance in the hope that abuses in taxation would be prevented through the familiarizing of the voters with the wants and financial condition of their own localities. By 1850 the articles on taxation and finance for loans made to the National Government: Weston et al. vs. The City Council of Charleston, 2 Peters, 449; see also Dobbins vs. The Commissioners of Erie County, 16 Peters, 435. 1 For an account of this innovation see my Constitutional History of the American People, 1776-1850, Vol. II, Chap. xv, and Index, "Taxation." 2 See my Constitutional History of the American People, 17761850, Vol. II, 65, 120-124, 266, 440, 444-450. in the newer constitutions1 had evolved essentially into their modern form and content. In none of the new provisions, however, was there any limitation to the right to tax as original, and, to use a phrase of the time, a sovereign right. But the obvious purpose of the provisions on finance and taxation were to prevent further deficits in revenue; to prevent the conversion of public funds to private purposes without authority of law; to establish as far as possible, a uniform system of taxation and in general to make finance simple, efficient and systematic. The bank controversy, as agitated in Jackson's time, involved many questions, and among them the issue of bills of credit. The Constitution forbade States to issue them. The principle involved in this prohibition was examined by Chief-Justice Marshall in 1830, in a decision to which, it had been well for the country, had the people strictly adhered.2 He defined a bill of credit as "an instrument by which a State engages to pay money at a future day, thus including a certificate for money borrowed." But the words to emit bills of credit, said he, "conveys to the mind the idea of an issue of paper intended to circulate through the community for ordinary purposes as money, which paper is redeemable at a future day." This is the sense in which the term has always been understood. In the case before him, the denominations of the bills were from fifty to ten dollars, which fitted them for the purpose of ordinary circulation, moreover they were spoken of in the law of Missouri creating them3 as a circulating medium. It was contended that because they were not made a 1 As in Iowa, 1846, Articles VII, IX; Illinois, 1848, Article IX; Michigan, 1850, Article XIV. 2 1830, Craig et. al. vs. The State of Missouri, 4 Peters, 410. 3 June 26, 1821. 510 BILLS OF CREDIT. legal tender, they were not bills of credit in the sense of the Constitution. But Marshall brushed this subtle distinction aside. The prohibition in the Constitution was general and extended to all bills of credit, not to bills of a particular description. He recited, briefly, the history of paper money in the Colonies and in the States, showing that its great mischief consisted in its having been made a legal tender. Yet this quality was not an essential one or the only mischief resulting from such bills. It was "the issuing of them, the putting them into circulation which was the act of emission and forbidden by the Constitution. It was argued that to pronounce the act authorizing these bills unconstitutional would humiliate a sovereign State, and provoke grave dangers. To which Marshall bravely answered, that if the exercise of the jurisdiction which the Constitution and the laws of the United States imposed upon a court were calculated to bring on these dangers, or if it should be indispensable to the preservation of the Union and consequently to the independence and liberties of the States, the judicial department could listen only to the mandates of law "and tread only that path marked out by duty." It would have been well for the country had no departure from this decision ever been made, but seven years later amidst the terrible excitement of the panic of 1837, the court made a subtle distinction between a State and a corporation, meaning a bank which issues bills of credit, holding that the notes on the bank which the commonwealth of Kentucky issued were not bills of credit, for they were not emitted by the State upon its credit but upon the credit of the funds of the bank. The bank was not the State nor its agent. It possessed no more power than was given to it in the act of incorporation, indeed, it was like a private person engaged in business. Even in becoming an exclusive stockholder in this bank, the State imparted to it no attributes of sovereignty. Under its charter the bank had no power to emit bills having the impress of sovereignty, or which contained a pledge of its faith. It was a simple corporation "acting within the sphere of its corporate powers," and could no more transcend them than any other banking institution. The State as a stockholder bore the same relation to the bank as any other stockholder. Mr. Justice McLean delivered the opinion of the court. Its membership had greatly changed. Marshall was dead, and his associates who had held to his views, save Joseph Story, had also passed away. The character of the Court's decisions had suffered another change, the law of the Constitution was interpreted by another school of thinkers. McLean's decision in the Kentucky bank case coincided with the popular demand for State banks.1 No more perfect description of a stable currency can be found in our literature than the concluding passage in McLean's opinion. "The funds of the bank and its property of every description were held responsible for the payment of its debts and may be reached by legal or equitable processes. In this respect it can claim no exemption under the prerogative of the States. And if in the course of its operation its notes depreciate like the notes of other banks under the pressure of circumstances, still it must stand or fall by its charter. In this its powers are defined and its rights and the rights of those who gave credit to it are guaranteed; and even the abuse of its powers through which its credit has been impaired and the community endangered, cannot be considered in this case. We are 1 He had delivered a dissenting opinion in the case of Craig et al. vs. State of Missouri, |