fies the conclusion that it is not competent for the general government to impose a tax upon any of the instrumentalities by which a State maintains its organization and performs its proper and necessary functions. In this respect the State governments and the national government are upon an equality.

§ 85. In accordance with this view the Court held in the case of the United States v. Railroad Co. (17 Wall. 322) that the general government could not levy a tax upon the revenues of a State municipal corporation.

This decision follows the doctrine announced in the case of National Bank v. Commonwealth (9 Wall. 353). It is there said that State legislation which does not impair the usefulness of the instrumentalities of the national government is not within the rule of prohibition.

§ 86. In the case of Scholey v. Rew (23 Wall. 331) it was held that the provisions of the international revenue laws which imposed a tax on every "devolution of title to real estate" was not a "direct tax," but an excise tax authorized by the provision of the Constitution now under consideration.

87. In further construction of this clause the Court held in the case of Cook v. Pennsylvania (97 U. S., 566) that a State tax upon a sale of foreign goods while in the original packages, and while the property of the importer, was an unconstitutional tax, being so by virtue of the first paragraph of section eight and paragraph two of section ten of the first article.

CHAPTER VIII.

POWER TO BORROW MONEY ON THE CREDIT OF THE

UNITED STATES.

ART. 1, SEC. 8, PAR. 2.

§ 88. By the second paragraph of section eight, article one, Congress is authorized "to borrow money on the credit of the United States." The practical interpretation of this power has given rise to differences of opinion in the Court and to controversies among the people.

§ 89. The exercise of this power, as the power has been construed by the Court, works a limitation of the authority of the States to raise a revenue by taxation of the property of the citizens, when that property is in the form of bonds, notes or other securities of the United States.

§ 90. It was held in the case of McCulloch v. State of Maryland (4 Whea. 316) that it was competent for the United States to create a corporate bank with branches to be located in the several States at the pleasure of the parent bank, and that the bank and its branches were exempt from taxation by the States. The bank was considered an instrumentality through whose aid and agency the government might borrow money. Chief Justice Marshall, speaking for the Court and without dissent on the part of any member, said, "The States have no power by taxation or otherwise to retard, impede, burden or in any manner control the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the general government. This is," he added, "the unavoidable consequence of that supremacy which the Constitution has declared. This is a tax on the operations of the bank, and is, con

sequently, a tax on the operation of an instrument employed by the government of the Union to carry its powers into execution. Such a tax must be unconstitutional."

More than a half-century ago the bank ceased to exist, but the interpretations of the Constitution to which its existence gave rise have not been disturbed by the subsequent decisions of the court.

§ 91. The power of a municipal corporation to tax "the stock of the United States was raised in the case of Weston v. The City Council of Charleston (2 Pet. 449). The so-called "stock" appears to have been bonds issued by the government as evidence of indebtedness arising from a loan. of money to the United States. On the authority of the case of McCulloch v. State of Maryland, and in conformity to the reasoning of the opinion in that case, the Chief Justice said, "The tax on government stock is thought by this Court to be a tax on the contract, a tax on the power to borrow money on the credit of the United States, and consequently to be repugnant to the Constitution.”

Two of the justices dissented from the conclusion reached by the majority, but the conclusion itself has been affirmed from time to time and it is now the accepted law of the country.

§ 92. Following the line of decisions already cited the Court has held that obligations of the United States known as "certificates of indebtedness," issued to public creditors were exempt from taxation by States and municipalities. (The Banks v. The Mayor, 7 Wall. 16.)

§ 93. For the same reason and upon the same line of public policy, United States notes issued under the Loan and Currency acts of 1862 and 1863 and known as "greenbacks," are exempt from taxation by virtue of State authority. (Bank v. Supervisors, 7 Wall. 26.)

§ 94. Early in the period of the civil war the courts adopted or recognized certain nice distinctions in the claims of States to levy taxes upon the capital of banks and upon shares of stockholders in banks.

§ 95. A statute of the State of New York authorized the levy of a tax upon the property of State banks upon its appraised value, and that without regard to the fact that some or all of its capital might be invested in securities or obligations issued by the United States. Under this statute the city of New York levied a tax upon the appraised value of the capital of the Bank of Commerce, although a portion of that capital was invested in bonds issued by the authority of Congress. The validity of the statute was sustained by the Court of Appeals of the State of New York, but the decision was reversed by the Supreme Court and the statute was declared unconstitutional and void. (Bank of Commerce v. New York City, 2 Black. 620.)

It was intimated in the opinion that a tax upon the nominal capital of the bank, without regard to the property or value of the property held by the bank, would be sustained as a valid tax.

§ 96. Subsequently the State of New York enacted a law by which authority was given to the municipalities to levy a tax upon banks, and upon the basis of the capital stock paid in or secured to be paid in, and, again, without any inquiry as to the character of the investments. In the case known as the "Bank Tax Case" (2 Wall. 200), which came to the Supreme Court upon a writ of error in which a large number of banks were plaintiffs, the Court held that the cases then at bar could not be distinguished from the case of the Bank of Commerce.

Speaking for the Court, Mr. Justice Nelson said, "Having come to the conclusion that the tax on the capital of the Bank of the Commonwealth is a tax on the property of the Institution, and which consists of the stocks of the United States, we do not perceive how the case can be distinguished from that of the Bank of Commerce."

§ 97. By the act establishing and regulating national banks (Rev. Stat. § 5219), the States were authorized to assess the shares in banks subject to two limitations. (1) That the

tax should "not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State," and (2) that the shares owned by non-residents of the State should be assessed in the towns where the banks might be located.

The validity of this statute both as to the authority conferred upon the States and as to the limitations imposed was recognized in the case of Van Allen v. Assessors (3 Wall. 573) and the case of "National Bank v. Commonwealth (9 Wall. 353). In the former case the tax was declared to be illegal, for the reason that a like tax was not authorized and imposed upon the shares of State banks.

Thus did the Court recognize the validity of the limitations imposed by the statute of the United States; and thus have Congress and the Court recognized the National Banks as instrumentalities capable of aiding the government in the exercise of its power" to borrow money."

§ 98. In the presence of these authorities and having in mind the scope given to Congress in the matter of discretion in the case of McCulloch v. The State of Maryland, it seems safe to assume that the field for the exercise of that discretion in the selection of instrumentalities for the purpose of exercising the power conferred by this paragraph of the Constitution is limited only by other plain provisions of that instrument, or by the powers reserved to the States; and that the instrumentalities so selected may each and all be exempted from taxation by municipalities and State govern

ments.

§ 99. On the 25th of February, 1862, Congress passed an act which authorized an issue of the notes of the United States to the amount of one hundred and fifty million dollars and made them "receivable in payment of all taxes, internal duties, excises, debts and demands of every kind due to the United States, except duties on imports"; and it provided also that said notes should "be lawful money and a legal tender in payment of all debts public and private within the United