PRINCIPLES OF TAXATION. 473 



shall, lield " that a tax on stock of the United States, held by an in- 

 dividual citizen of a State, is a tax on the power to borrow money 

 on the credit of the United States, and can not be levied on the 

 authority of a State consistently with the Constitution," and, fur- 

 ther, " that if the right to impose a tax exists, it is a right which, 

 in its nature, acknowledges no limits. It may be carried to any 

 extent within the jurisdiction of the State or corporation which 

 imposes it, which the will of such State or corporation may pre- 

 scribe. Can anything," continued the Chief Justice, "be more 

 dangerous or more injurious than the admission of a principle 

 which authorizes every State and every corporation in the Union 

 which possesses the right of taxation to burden the exercise of 

 this (borrowing) power at their discretion ? " A tax on the stock 

 or bonds of a State is therefore a tax on the borrowing power of 

 such State. 



The court further held that a tax of this description was a tax 

 upon contracts,* using the following language : " Congress has 

 power to borrow money on the credit of the United States. The 

 stock it issues is evidence of a debt created by the exercise of this 

 power. The tax in question is a tax upon the contract subsisting 

 between the Government and the individual. It bears directly 

 upon the contract. While subsisting and in full force, the power 

 operates upon the contract the instant it is framed, and must im- 

 ply a right to affect that contract. If the States and corporations 

 throughout the Union possess the power to tax a contract for the 

 loan of money, what shall arrest the principle in its application 

 to every other contract ? What measure can Government adopt 

 which will not be exposed to its influence ? The right to tax the 

 contract to any extent, when made, must operate upon the power 

 to borrow before it is exercised, and have a sensible influence 



* What interpretation the Supreme Court puts upon the word " contract" as found in 

 that clause of the Constitution of the United States which provides " that no State shall 

 pass any law impairing the obligations of contracts," is made clear by the following language 

 employed by Chief-Justice Marshall in giving the opinion of the court in the celebrated 

 case of the Trustees of Dartmouth College vs. Woodward : " The term contract must be 

 understood as intended to guard against a power of at least doubtful utility, the abuse 

 of which had been extensively felt, and to restrain the Legislature in future from violating 

 the right to property ; that anterior to the formation of the Constitution a course of legis- 

 lation had prevailed in many if not all of the States which weakened the confidence of man 

 in man, and embarrassed all transactions between individuals, by dispensing with a faithful 

 performance of engagements. To correct this mischief by restraining the power which 

 produced it, the State Legislatures were forbidden ' to pass any law impairing the obliga- 

 tions of contracts ' that is, of contracts respecting property, under which some individual 

 could claim a right to something beneficial to himself ; and that, since the clause in the 

 Constitution must in construction receive some limitation, it may be confined, and ought to 

 be confined, to cases of this description to cases within the mischief it was intended to 

 remedy." 



