We all know #1. A few know #2. But #3 gets less publicity. It is known mainly because of the man who killed it.
The favorite is the Federal Reserve System. No surprise here.
In second place is Alexander Hamilton’s First Bank of the United States, which set the precedent, 1791-1811.
You can guess #3: the Second Bank of the United States. It was created in 1816. Three years later, it produced the nation’s first economic depression.
It is best known for two things. First, the Supreme Court upheld its sovereignty in the famous case, McCulloch v. Maryland (1819). That case created tax immunity for the U.S. government. The states may not tax any agency of the federal government. Such tax immunity did not officially exist prior to 1819. Textbooks do not mention this judicial fact.
Second, in 1832, President Jackson vetoed a bill to extend the life of the Bank for an extra 15 years beyond the “sunset” date of 1836. For doing this, historians dismiss Jackson as an economic ignoramus. Not only was he not an economic ignoramus, he delivered the United States from the scourge of crony capitalism’s most important institution until 1914.
This week, I discovered something that I had never heard of in over 50 years of studying American history. There was a link between McCulloch v. Maryland and Jackson’s veto. This existence of this link was deliberately suppressed by Chief Justice John Marshall in 1819. Marshall was so successful in suppressing this information that no historian saw its connection to the veto. I spotted it only because of my course in American history for the Ron Paul Curriculum. I have a Ph.D. in history. One of my fields was 19th-century American history. Yet I was not told of this connection. The historical guild has not talked about it. I think this is because no one has looked at the relevant documents and then put two and two together. I put the pieces together here.
Marshall lived long enough to to see this link revived in 1832. Jackson used it in his veto of the Bank. If Jackson had had his way, the state taxation of the federal government’s profit-seeking ventures — Fannie Mae, Freddie Mac, and the Federal Reserve System — would have begun decades ago. But no other President followed his lead.
Upon the formation of the Constitution the States guarded their taxing power with peculiar jealousy. They surrendered it only as it regards imports and exports. In relation to every other object within their jurisdiction, whether persons, property, business, or professions, it was secured in as ample a manner as it was before possessed. All persons, though United States officers, are liable to a poll tax by the States within which they reside. The lands of the United States are liable to the usual land tax, except in the new States, from whom agreements that they will not tax unsold lands are exacted when they are admitted into the Union. Horses, wagons, any beasts or vehicles, tools, or property belonging to private citizens, though employed in the service of the United States, are subject to State taxation. Every private business, whether carried on by an officer of the General Government or not, whether it be mixed with public concerns or not, even if it be carried on by the Government of the United States itself, separately or in partnership, falls within the scope of the taxing power of the State. Nothing comes more fully within it than banks and the business of banking, by whomsoever instituted and carried on. Over this whole subject-matter it is just as absolute, unlimited, and uncontrollable as if the Constitution had never been adopted, because in the formation of that instrument it was reserved without qualification.
Here is my lesson for RPC students. I guarantee you, there is no other curriculum — high school through grad school — that offers this information.