The Panic of 1819 lasted little more than a year, but it severely disrupted the political harmony of the previous years. Those suffering from the economic downturn pressed the state and national governments for assistance. To the consternation of creditors, many states, especially in the West, responded by suspending the collection of debts. Kentucky went even further, establishing a state bank that flooded the state with paper money that creditors were required to accept in repayment of loans. This eased the burden on indebted farmers, but injured those who had loaned them the money. Overall, the Panic deepened many Americans’ traditional distrust of banks. It undermined the reputation of the Second Bank of the United States, which was widely blamed for causing the Panic. Several states retaliated against the national bank by taxing its local branches.
These tax laws produced another of John Marshall’s landmark Supreme Court decisions, in the case of McCulloch v. Maryland (1819). Reasserting his broad interpretation of governmental powers, Marshall declared the Bank a legitimate exercise of congressional authority under the Constitution’s clause that allowed Congress to pass “necessary and proper” laws. Marshall’s interpretation of the Constitution directly contradicted the “strict construction” view that limited Congress to powers specifically granted in the Constitution. Marshall acknowledged that the Constitution nowhere mentions the right of lawmakers to issue corporate charters. But, he wrote, where the aim of legislation—in this case to promote the “general welfare”—was legitimate, “all means which are... not prohibited... are constitutional.” Maryland, the chief justice continued, could not tax the Bank. “The power to tax,” Marshall remarked, “involves the power to destroy,” and the states lacked the authority to destroy an agency created by the national government.