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The Art of Strategy

When it comes to strategy, how should we define victory? For centuries,

Eastern and Western thinkers have grappled with this question, offering
different answers. What can we learn from this difference? In The Art of
Strategy, Moon provides a novel and systematic integration of the
two dominant frameworks of the East and West: Sun Tzu’s military
strategy and Michael Porter’s business strategy. This unlikely
combination of thinking suggests an innovative extension of our
understanding and practice of strategy, which will appeal to scholars,
students, practitioners, and general readers with an interest in strategy.
By aligning the perspectives of these two great thinkers, Moon argues
that true winning is about maximizing and optimizing overall value for
all engaged stakeholders, and this requires a more efficient approach to
strategy.

hwy-chang moon is Professor at the Graduate School of

International Studies, Seoul National University. Dr. Moon has con-
sulted many Korean and multinational companies, international orga-
nizations (e.g., UNCTAD) and governments (e.g., Korea, Malaysia,
Dubai, Azerbaijan, Guangdong Province of China, and India). He has
published numerous articles and books on topics covering interna-
tional business strategy and economic development, including
The Strategy for Korea’s Economic Success, recently published by
Oxford University Press.
The Art of Strategy
Sun Tzu, Michael Porter, and Beyond

h wy - c ha ng moo n
Seoul National University
University Printing House, Cambridge CB2 8BS, United Kingdom
One Liberty Plaza, 20th Floor, New York, NY 10006, USA
477 Williamstown Road, Port Melbourne, VIC 3207, Australia
314–321, 3rd Floor, Plot 3, Splendor Forum, Jasola District Centre,
New Delhi – 110025, India
79 Anson Road, #06–04/06, Singapore 079906

Cambridge University Press is part of the University of Cambridge.

It furthers the University’s mission by disseminating knowledge in the pursuit of
education, learning, and research at the highest international levels of excellence.

www.cambridge.org
Information on this title: www.cambridge.org/9781108470308
DOI: 10.1017/9781108572507
© Hwy-Chang Moon 2018
This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 2018
Printed and bound in Great Britain by Clays Ltd, Elcograf S.p.A.
A catalogue record for this publication is available from the British Library.
ISBN 978-1-108-47030-8 Hardback
ISBN 978-1-108-45580-0 Paperback
Cambridge University Press has no responsibility for the persistence or accuracy of
URLs for external or third-party internet websites referred to in this publication
and does not guarantee that any content on such websites is, or will remain,
accurate or appropriate.
 Contents

List of Figures and Tables page x

Preface xiii
Acknowledgments xvii

Introduction 1

1 Getting Started: Overall Assessment 16

1.1 Sun Tzu: Five Elements for Laying Plans 17
1.2 Porter: Diamond Model for Analyzing
Competitiveness 19
1.3 The Integration of Sun Tzu and Porter 21
1.4 Military Case: Japan’s Attack on Pearl Harbor 26
1.5 Business Case: Sony’s Experience with the Walkman 30
1.6 Conclusion and Implications 33

2 Economic Consideration 36
2.1 Sun Tzu: Swift Victory and Local Procurement
in Waging War 37
2.2 Porter: Value Chain Analysis in Aligning Activities 41
2.3 The Integration of Sun Tzu and Porter 44
2.4 Military Case: Napoleon’s Invasion of Russia 53
2.5 Business Case: Hyundai Motor Company’s Global
Strategy 55
2.6 Conclusion and Implications 59

3 Avoiding Competition 61
3.1 Sun Tzu: Complete Victory by Strategic Attack 63
3.2 Porter: Five Forces Model for Selecting an Attractive
Industry 67

v
vi contents

3.3 The Integration of Sun Tzu and Porter 71

3.4 Military Case: Genghis Khan’s Terror Strategy 76
3.5 Business Case: The Changing Attractiveness
of the Mobile Phone Industry 78
3.6 Conclusion and Implications 84

4 Competitive Positioning 87
4.1 Sun Tzu: Easy Victory through Tactical Positioning 88
4.2 Porter: Generic Strategy for Advantageous
Positioning 91
4.3 The Integration of Sun Tzu and Porter 95
4.4 Military Case: Soviets’ Victory in the Battle of
Stalingrad 98
4.5 Business Case: Toyota’s Changing Position
in the Automobile Industry 102
4.6 Conclusion and Implications 105

5 Enhanced Advantage 107

5.1 Sun Tzu: Synergies from the Combination of Cheng
(Normal) and Chi (Abnormal) 108
5.2 Porter: Distinguishing Operational Effectiveness (OE)
and Strategic Positioning (SP) 112
5.3 The Integration of Sun Tzu and Porter 116
5.4 Military Case: The US Failure in the Vietnam War 118
5.5 Business Case: Walmart’s Cost Leadership
Strategy 120
5.6 Conclusion and Implications 124

6 Unique Positioning 126

6.1 Sun Tzu: Avoiding the Enemy’s Strengths and
Attacking Their Weaknesses 127
6.2 Porter: Trade-Offs and Strategic Fit 131
6.3 The Integration of Sun Tzu and Porter 134
6.4 Military Case: Hannibal’s Victory at Cannae 137
 contents vii

6.5 Business Case: Southwest Airlines’ Unique

Positioning 141
6.6 Conclusion and Implications 144

7 Overcoming Disadvantages 146

7.1 Sun Tzu: Turning the Devious (Disadvantage) into
the Straight (Advantage) 148
7.2 Porter: Turning Corporate Social Responsibility (CSR)
to Creating Shared Value (CSV) 150
7.3 The Integration of Sun Tzu and Porter 153
7.4 Military Case: The Long March of the Chinese Red
Army 156
7.5 Business Case: Nestlé’s CSV Activities in India 159
7.6 Conclusion and Implications 163

8 Strategic Flexibility 165

8.1 Sun Tzu: Variation of Tactics 166
8.2 Porter: Consistency and Changes in Business Strategy
and Operations 170
8.3 The Integration of Sun Tzu and Porter 172
8.4 Military Case: The Victory of the Greeks in the Trojan
War 175
8.5 Business Case: Haier’s Successful Transition through
Changes in Its Business Strategy 178
8.6 Conclusion and Implications 183

9 Extended Strategies 185

9.1 Sun Tzu: Troop Deployment and Enemy
Investigation 186
9.2 Porter: Extended Generic Strategies 191
9.3 The Integration of Sun Tzu and Porter 196
9.4 Military Case: Han Xin’s Victory in the Battle of
Jingxing 198
viii contents

9.5 Business Case: Tata Motors’ Failure in Tata Nano 202

9.6 Conclusion and Implications 206

10 Location Advantage 208

10.1 Sun Tzu: Exploitation of Terrain Advantages 209
10.2 Porter: Cluster Development for Improving Location
Advantage 212
10.3 The Integration of Sun Tzu and Porter 216
10.4 Military Case: Admiral Yi’s Victory in the Battle of
Myeongnyang 220
10.5 Business Case: The Competitiveness of Silicon
Valley 223
10.6 Conclusion and Implications 227

11 International Strategy 229

11.1 Sun Tzu: Strategic Guidelines for Expeditionary
Operations 230
11.2 Porter: Configuration-Coordination Model for Firms’
Internationalization 236
11.3 The Integration of Sun Tzu and Porter 238
11.4 Military Case: The United Nations Forces’ Victory
in the Battle of Incheon 242
11.5 Business Case: Starbucks’ Success in China 245
11.6 Conclusion and Implications 250

12 Superior Power 252

12.1 Sun Tzu: The Fire Attack 253
12.2 Porter: Created and Sustainable Advantage through
Innovation 257
12.3 The Integration of Sun Tzu and Porter 261
12.4 Military Case: Wu and Shu’s Victory in the Battle
of Red Cliffs 264
 contents ix

12.5 Business Case: Nobel Brothers’ Business in

Azerbaijan 266
12.6 Conclusion and Implications 269

13 Information Advantage 271

13.1 Sun Tzu: Foreknowledge through the Use of Spies 272
13.2 Porter: Information Technology versus Core
Competence 276
13.3 The Integration of Sun Tzu and Porter 280
13.4 Military Case: Mata Hari, a Spy for Germany and
France 283
13.5 Business Case: Google’s Failure in China 286
13.6 Conclusion and Implications 290

Epilogue 292

References 295
Index 307
 Figures and Tables

figures
I.1 The overall structure of The Art of War page 3
I.2 Comparison between war and business 5
1.1 Sun Tzu’s five elements and Porter’s diamond
model 27
2.1 Sun Tzu’s cost drivers and Porter’s value chain 49
3.1 Sun Tzu’s five military forces and Porter’s five forces
model 74
3.2 Five forces of the mobile phone industry 82
4.1 Dynamic model of Porter’s generic strategies 95
5.1 Operational effectiveness versus strategic
positioning 114
5.2 The relationship between OE-SP and
cost-differentiation advantage 115
6.1 The disposition of the Roman and Carthaginian
armies before the battle 138
6.2 Hannibal’s tactical disposition for defeating
the Roman armies 139
9.1 Eight generic strategies 193
9.2 Battle of Jingxing 200
9.3 Strategic direction for the future of Tata Motors 205
11.1 The dimensions of international strategy 237

tables
I.1 The linkages between Sun Tzu and Michael Porter
for each chapter 11
2.1 Comparison of Porter’s firm value chain and
Sun Tzu’s military value chain 48

x
 list of figures and tables xi

4.1 Risks of generic strategies 94

5.1 Explanations of Cheng and Chi 109
9.1 Types of observing the enemy 188
10.1 Six types of terrain 210
11.1 Comparison of terrains in Sun Tzu’s chapters 8, 10,
and 11 231
 Preface

Sun Tzu and Michael Porter are the most frequently cited strategists
in their respective fields of military and business, and their strategic
philosophies have been widely applied to other areas beyond military
and business. While no one disputes the authority of these two
strategists, few understand how they are truly differentiated from
other leaders in their own fields. It is interesting to note that despite
coming from two different times and having seemingly disparate areas
of focus, these two strategists share commonalities along four traits:
wide perspective, insightful thoughts, systematic analysis, and easy
presentation (or WISE – the initials of the four).

how is sun tzu different?

Wide Perspective Many leading military strategists such as Carl von
Clausewitz (a famous German military strategist in the 1800s) have
emphasized the military strategy for victory during a war. In contrast,
Sun Tzu’s philosophy encompassed military strategies “before,
during, and after a war.” His primary goal as a military leader was to
avoid unnecessary conflicts as he understood that the ultimate goal is
not simply a victorious battle but a profitable result after the battle is
won. This led Liddell Hart, a British military philosopher, to praise
Sun Tzu’s strategy as the “grand strategy.” No other military
strategist or philosopher has employed such a comprehensive
perspective on war.

Insightful Thoughts While other military strategists, including

Clausewitz, stressed big battles as the way to win, Sun Tzu advocated
small battles as a way to minimize the costs of war. Hence, Sun Tzu’s
ideas are more about the most efficient victory rather than just
defeating the enemy. According to Sun Tzu, therefore, supreme

xiii
xiv preface

excellence in warfare is to win without fighting; if fighting is

inevitable, one has to search for ways to fight with minimum costs, in
an effort to avoid casualties and the loss of other resources. This
distinctive thought of Sun Tzu is highly praised by later scholars as
a “complete victory.”

Systematic Analysis The value of social science (natural science as

well) is its ability to explain seemingly complicated real-world issues in
a simple and systematic way. Sun Tzu’s approach serves this purpose
very well. For example, he analyzed an infinite number of possible ways
to victory through the combination of two military strategies – Cheng
(normal) and Chi (abnormal). Another example is that he showed how
to analyze the competitiveness of oneself and one’s enemy with five
criteria, which include both internal and external factors. Some of his
other models include six or nine variables, but all of his analytical
models are systematically constructed.

Easy Presentation Despite the depth of Sun Tzu’s systematic military

models, they are intuitive and easy to understand. A key differentiator
of Sun Tzu is his ability to simplify situations. He noted that one could
create an infinite number of colors in the world through various
combinations of the five basic colors of red, blue, yellow, black, and
white. Similarly, Sun Tzu stressed five virtues that a competent
general should have and five dangers that a general should avoid.
As such, a general’s strengths and weaknesses can be easily analyzed
through Sun Tzu’s model. Many of Sun Tzu’s philosophies in The Art
of War are easily applicable to our everyday lives today.

how is michael porter different?

Wide Perspective Porter’s strategic perspective is not only at the firm
level but also at the industry, regional, country, society, and
environmental levels. For each level, Porter provides a comprehensive
perspective that is distinguished from other scholars. Other scholars’
theories are generally only a subset of Porter’s models – for example,
the resource-based view in evaluating a firm’s competitive advantage
 preface xv

only highlights rare and inimitable resources, which is part of Porter’s

theory of the differentiation advantage. In contrast, Porter suggested
a broader perspective in analyzing the sources of competitive
advantage – differentiation and cost. He then further categorized them
into a broad and narrow scope, comprised of four types of generic
strategies, which allow firms to achieve superior performance relative
to their competitors.

Insightful Thoughts Porter stated that there are two types of

organization in the world – one (i.e., the firm) for creating values and
the other (i.e., the government and nonprofit organizations) for
distributing values. He further claimed that the ultimate goal of a firm
is not to defeat its competitors but to create value for the stakeholders,
including society. Porter then explained that there could be multiple
winners in the same industry, if firms chose an appropriate and/or
unique positioning. This Porterian insight shows that business is
more about constructive (or positive-sum) rather than destructive (or
zero-sum) competition.

Systematic Analysis Although Porter deals with a wide scope of

issues, his analyses are well captured in simplified, systematic
frameworks comprised of well-organized analytical tools. For
example, Porter’s analytical models include the generic strategy for
the firm, the five forces model for the industry, the diamond model for
the nation, and the model of creating shared value for the society and
environment. Relative to Porter, other business scholars and
strategists often make vague and disorganized arguments, such as the
need to develop state-of-the-art technologies or flexibly adapt to the
changing business environment.

Easy Presentation Porter’s strategy models are easy to understand and

applicable to various fields. While Porter’s models are often criticized
for lacking “sophistication,” his models, although seemingly simple
on the surface, are more in-depth, powerful, and practical than other
complex theories. For example, while his generic strategy model looks
xvi preface

simple, it shows several alternative ways for firms to be successful

with the right positioning in the market. In contrast, other seemingly
sophisticated economic models often explain the strategic choice
mainly based on the cost criterion. Porter’s strategy is a masterpiece of
simplicity and easiness.

integration and beyond

Collaboration and integration have been rare between Eastern and
Western strategies. Military and business as academic disciplines or
practical fields are also far apart. Thus, the gap between Eastern
military thinking and Western business thinking is very large.
However, if these distant fields can be effectively integrated, we may
be able to derive many useful implications. As Sun Tzu and Porter are
the two most distinguished thinkers of the East and West, the purpose
of this book is to learn from Sun Tzu and Porter, to integrate their
philosophies, and to derive implications that go beyond each of their
philosophies.
Although Sun Tzu and Porter are from different times and have
different areas of expertise, the fundamental principles of strategy are
the same for all areas and all times – only their applications need to be
modified to specific situations. The good news is that once you
thoroughly understand the fundamental principles of great lessons,
you can easily be flexible with applying these principles to the real
world. I hope that scholars and policy makers as well as military and
business strategists will learn the important principles of strategy
from Sun Tzu and Porter, build on the strengths of these two great
minds, and acquire the wisdom of strategic thinking.
10 introduction

generic positioning (i.e., generic strategy) – cost leadership, differen-

tiation, and focus.2 The firm choosing any one of the three generic
strategies can achieve above average profits. Moreover, Porter (1996)
emphasized that only the unique positioning with good trade-offs
and fit among the firm’s value activities can help firms avoid imita-
tion from the rivals, thereby achieving a sustainable competitive
advantage.
Porter introduced numerous business models since the 1980s. In
this book, I selected Porter’s most useful business models to compare
with Sun Tzu’s military strategies. These models vary in their char-
acteristics: some are about evaluating the business environment such
as the five forces model and diamond model; others are about choosing
a unique positioning against the competitors, such as the generic
strategy, and strategic positioning. There are also other theories and
concepts, including cluster theory, and more recently the concept of
creating shared value for sustainable development of both firms and
the society.
In the course of my research, I was surprised to find Porter’s
business strategy models and Sun Tzu’s military strategy models
match in their numbers and characteristics. For example, Porter’s
diamond model of evaluating the business environment is similar to
Sun Tzu’s consideration of various factors of determining the victory.
Porter’s models on choosing firms’ superior positions against the
competitors are much similar to Sun Tzu’s strategies, which empha-
size gaining relative superiority at the point of contact, such as the
military tactics of avoiding the enemy’s strengths and attacking their
weaknesses. These theoretical linkages of the thirteen chapters
between Sun Tzu and Porter are illustrated in Table I.1.
The similarities between Sun Tzu and Porter, however,
should be studied and applied with a full understanding of the
fundamental difference between war and business. Victory at any
cost is the nonnegotiable end in a war, but value creation
2
Porter (1985) further categorized the focus strategy into two, cost focus and differentia-
tion focus, thus four generic strategies in total.
Another random document with
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 the Court, observed: 'The solution of this question must
necessarily depend on the words of the Constitution; the
meaning and intention of the convention which framed and
proposed it for adoption and ratification to the conventions
of the people of and in the several States; together with a
reference to such sources of judicial information as are
resorted to by all courts in construing statutes, and to which
this court has always resorted in construing the
Constitution.' 12 Pet. 657, 721. We know of no reason for
holding otherwise than that the words 'direct taxes,' on the
one hand, and 'duties, imposts and excises,' on the other,
were used in the Constitution in their natural and obvious
sense. Nor in arriving at what those terms embrace do we
perceive any ground for enlarging them beyond or narrowing
them within their natural and obvious import at the time the
Constitution was framed and ratified.

{555}

"And passing from the text, we regard the conclusion reached

as inevitable, when the circumstances which surrounded the
convention and controlled its action and the views of those
who framed and those who adopted the Constitution are
considered. … In the light of the struggle in the convention
as to whether or not the new Nation should be empowered to
levy taxes directly on the individual until after the States
had failed to respond to requisitions—a struggle which did not
terminate until the amendment to that effect, proposed by
Massachusetts and concurred in by South Carolina, New
Hampshire, New York, and Rhode Island, had been rejected—it
would seem beyond reasonable question that direct taxation,
taking the place as it did of requisitions, was purposely
restrained to apportionment according to representation, in
order that the former system as to ratio might be retained
while the mode of collection was changed. This is forcibly
illustrated by a letter of Mr. Madison of January 29, 1789,
recently published, written after the ratification of the
Constitution, but before the organization of the government
and the submission of the proposed amendment to Congress,
which, while opposing the amendment as calculated to impair
the power only to be exercised in extraordinary emergencies,
assigns adequate ground for its rejection as substantially
unnecessary, since, he says, 'every State which chooses to
collect its own quota may always prevent a Federal collection,
by keeping a little beforehand in its finances and making its
payment at once into the Federal treasury.'

"The reasons for the clauses of the Constitution in respect of

direct taxation are not far to seek. The States, respectively,
possessed plenary powers of taxation. They could tax the
property of their citizens in such manner and to such extent
as they saw fit; they had unrestricted powers to impose duties
or imposts on imports from abroad, and excises on
manufactures, consumable commodities, or otherwise. They gave
up the great sources of revenue derived from commerce; they
retained the concurrent power of levying excises, and duties
if covering anything other than excises; but in respect of
them the range of taxation was narrowed by the power granted
over interstate commerce, and by the danger of being put at
disadvantage in dealing with excises on manufactures. They
retained the power of direct taxation, and to that they looked
as their chief resource; but even in respect of that, they
granted the concurrent power, and if the tax were placed by
both governments on the same subject, the claim of the United
States had preference. Therefore, they did not grant the power
of direct taxation without regard to their own condition and
resources as States; but they granted the power of apportioned
direct taxation, a power just as efficacious to serve the needs
of the general government, but securing to the States the
opportunity to pay the amount apportioned, and to recoup from
their own citizens in the most feasible way, and in harmony
with their systems of local self-government. If, in the
changes of wealth and population in particular States,
apportionment produced inequality, it was an inequality
stipulated for, just as the equal representation of the
States, however small, in the Senate, was stipulated for. …

"Moreover, whatever the reasons for the constitutional

provisions, there they are, and they appear to us to speak in
plain language. It is said that a tax on the whole income of
property is not a direct tax in the meaning of the
Constitution, but a duty, and, as a duty, leviable without
apportionment, whether direct or indirect. We do not think so.
Direct taxation was not restricted in one breath and the
restriction blown to the winds in another. Cooley (On
Taxation, page 3) says that the word 'duty' ordinarily 'means
an indirect tax imposed on the importation, exportation or
consumption of goods'; having a broader meaning than "custom,"
which is a duty imposed on imports or exports'; that 'the term
"impost" also signifies any tax, tribute or duty, but it is
seldom applied to any but the indirect taxes. An excise duty
is an inland impost, levied upon articles of manufacture or
sale, and also upon licenses to pursue certain trades or to
deal in certain commodities.' In the Constitution the words
'duties, imposts and excises' are put in antithesis to direct
taxes. Gouverneur Morris recognized this in his remarks in
modifying his celebrated motion, as did Wilson in approving of
the motion as modified. …

"Our conclusions may therefore be summed up as follows:

"First. We adhere to the opinion already announced, that,

taxes on real estate being indisputably direct taxes, taxes on
the rents or income of real estate are equally direct taxes.

"Second. We are of opinion that taxes on personal property, or

on the income of personal property, are likewise direct taxes.

"Third. The tax imposed by sections twenty-seven to

thirty-seven, inclusive, of the act of 1894, so far as it
falls on the income of real estate and of personal property,
 being a direct tax within the meaning of the Constitution,
and, therefore, unconstitutional and void because not
apportioned according to representation, all those sections,
constituting one entire scheme of taxation, are necessarily
invalid."

Four dissenting opinions were prepared, by Justices Harlan,

Brown, Jackson and White. In that of Mr. Justice Harlan, he
said: "What are 'direct taxes' within the meaning of the
Constitution? In the convention of 1787, Rufus King asked what
was the precise meaning of 'direct' taxation, and no one
answered. Madison Papers, 5 Elliott's Debates, 451. The
debates of that famous body do not show that any delegate
attempted to give a clear, succinct definition of what, in his
opinion, was a direct tax. Indeed the report of those debates,
upon the question now before us, is very meagre and
unsatisfactory. An illustration of this is found in the case
of Gouverneur Morris. It is stated that on the 12th of July,
1787, he moved to add to a clause empowering Congress to vary
representation according to the principles of 'wealth and
numbers of inhabitants,' a proviso 'that taxation shall be in
proportion to representation.' And he is reported to have
remarked, on that occasion, that while some objections lay
against his motion, he supposed 'they would be removed by
restraining the rule to direct taxation.' Elliott's Debates,
302.
{556}
But, on the 8th of August, 1787, the work of the Committee on
Detail being before the convention, Mr. Morris is reported to
have remarked, 'let it not be said that direct taxation is to
be proportioned to representation.' 5 Elliott's Debates, 393.
If the question propounded by Rufus King had been answered in
accordance with the interpretation now given, it is not at all
certain that the Constitution, in its present form, would have
been adopted by the convention, nor, if adopted, that it would
have been accepted by the requisite number of States." The
following is from the dissenting opinion of Mr. Justice Brown:
"In view of the fact that the great burden of taxation among
the several States is assessed upon real estate at a
valuation, and that a similar tax was apparently an important
part of the revenue of such States at the time the
Constitution was adopted, it is not unreasonable to suppose
that this is the only undefined direct tax the framers of the
Constitution had in view when they incorporated this clause
into that instrument. The significance of the words 'direct
taxes' was not so well understood then as it is now, and it is
entirely probable that these words were used with reference to
a generally accepted method of raising a revenue by tax upon
real estate. … But, however this may be, I regard it as very
clear that the clause requiring direct taxes to be apportioned
to the population has no application to taxes which are not
capable of apportionment according to population. It cannot be
supposed that the convention could have contemplated a
practical inhibition upon the power of Congress to tax in some
way all taxable property within the jurisdiction of the
Federal government, for the purposes of a national revenue.
And if the proposed tax were such that in its nature it could
not be apportioned according to population, it naturally
follows that it could not have been considered a direct tax,
within the meaning of the clause in question."

Mr. Justice Jackson concluded his dissenting opinion as

follows: "The practical operation of the decision is not only
to disregard the great principles of equality in taxation, but
the further principle that in the imposition of taxes for the
benefit of the government the burdens thereof should be
imposed upon those having the most ability to bear them. This
decision, in effect, works out a directly opposite result, in
relieving the citizens having the greater ability, while the
burdens of taxation are made to fall most heavily and
oppressively upon those having the least ability. It lightens
the burden upon the larger number in some States subject to
the tax, and places it most unequally and disproportionately
on the smaller number in other States. Considered in all its
bearings, this decision is, in my judgment, the most
disastrous blow ever struck at the constitutional power of
Congress. It strikes down an important portion of the most
vital and essential power of the government in practically
excluding any recourse to incomes from real and personal
estate for the purpose of raising needed revenue to meet the
government's wants and necessities under any circumstances.

"I am therefore compelled to enter my dissent to the judgment

of the court."

The opinion delivered by the majority of the Court was

criticised with severity by Mr. Justice White, who said: "The
injustice of the conclusion points to the error of adopting
it. It takes invested wealth and reads it into the
Constitution as a favored and protected class of property,
which cannot be taxed without apportionment, whilst it leaves
the occupation of the minister, the doctor, the professor, the
lawyer, the inventor, the author, the merchant, the mechanic,
and all other forms of industry upon which the prosperity of a
people must depend, subject to taxation without that
condition. A rule which works out this result, which, it seems
to me, stultifies the Constitution by making it an instrument of
the most grievous wrong, should not be adopted, especially
when, in order to do so, the decisions of this court, the
opinions of the law writers and publicists, tradition,
practice, and the settled policy of the government must be
overthrown.

"To destroy the fixed interpretation of the Constitution, by

which the rule of apportionment according to population, is
confined to direct taxes on real estate so as to make that
rule include indirect taxes on real estate and taxes, whether
direct or indirect, on invested personal property, stocks,
bonds, etc., reads into the Constitution the most flagrantly
unjust, unequal, and wrongful system of taxation known to any
civilized government. This strikes me as too clear for
argument. I can conceive of no greater injustice than would
result from imposing on one million of people in one State,
having only ten millions of invested wealth, the same amount
of tax as that imposed on the like number of people in another
State having fifty times that amount of invested wealth. The
application of the rule of apportionment by population to
invested personal wealth would not only work out this wrong,
but would ultimately prove a self-destructive process, from
the facility with which such property changes its situs. If so
taxed, all property of this character would soon be transferred
to the States where the sum of accumulated wealth was greatest
in proportion to population, and where therefore the burden of
taxation would be lightest, and thus the mighty wrong
resulting from the very nature of the extension of the rule
would be aggravated. It is clear then, I think, that the
admission of the power of taxation in regard to invested
personal property, coupled with the restriction that the tax
must be distributed by population and not by wealth, involves
a substantial denial of the power itself, because the
condition renders its exercise practically impossible. To say
a thing can only be done in a way which must necessarily bring
about the grossest wrong, is to delusively admit the existence
of the power, while substantially denying it. And the grievous
results sure to follow from any attempt to adopt such a system
are so obvious that my mind cannot fail to see that if a tax
on invested personal property were imposed by the rule of
population, and there were no other means of preventing its
enforcement, the red spectre of revolution would shake our
institutions to their foundation. …

"It is, I submit, greatly to be deplored that, after more than

one hundred years of our national existence, after the
government has withstood the strain of foreign wars and the
dread ordeal of civil strife, and its people have become
united and powerful, this court should consider itself
compelled to go back to a long repudiated and rejected theory
of the Constitution, by which the government is deprived of an
 inherent attribute of its being, a necessary power of taxation."

United States Reports,

v. 158, pages 601-715.

{557}

UNITED STATES OF AMERICA: A. D. 1895 (July-November).

Correspondence with the Government of Great Britain
on the Venezuela boundary question.

See (in this volume)

VENEZUELA: A. D. 1895 (JULY), and (NOVEMBER).

UNITED STATES OF AMERICA: A. D. 1895 (September).

Executive order for the improvement of the consular service.

In his annual Message to Congress, December 2, 1895, President

Cleveland made the following statement of measures adopted for
the improvement of the consular service of the country:

"In view of the growth of our interests in foreign countries

and the encouraging prospects for a general expansion of our
commerce, the question of an improvement in the consular
service has increased in importance and urgency. Though there
is no doubt that the great body of consular officers are
rendering valuable services to the trade and industries of the
country, the need of some plan of appointment and control
which would tend to secure a higher average of efficiency can
not be denied. The importance of the subject has led the
Executive to consider what steps might properly be taken
without additional legislation to answer the need of a better
system of consular appointments. The matter having been
committed to the consideration of the Secretary of State, in
pursuance of his recommendations, an Executive order was
issued on the 20th of September, 1895, by the terms of which
it is provided that after that date any vacancy in a consular
or commercial agency with an annual salary or compensation
from official fees of not more than $2,500 or less than $1,000
should be filled either by transfer or promotion from some
other position under the Department of State of a character
tending to qualify the incumbent for the position to be
filled, or by the appointment of a person not under the
Department of State, but having previously served thereunder
and shown his capacity and fitness for consular duty, or by
the appointment of a person who, having been selected by the
President and sent to a board for examination, is found, upon
such examination, to be qualified for the position. Posts
which pay less than $1,000 being usually, on account of their
small compensation, filled by selection from residents of the
locality, it was not deemed practicable to put them under the
new system.

"The compensation of $2,500 was adopted as the maximum limit

in the classification for the reason that consular officers
receiving more than that sum are often charged with functions
and duties scarcely inferior in dignity and importance to
those of diplomatic agents, and it was therefore thought best
to continue their selection in the discretion of the Executive
without subjecting them to examination before a board.
Excluding seventy-one places with compensation at present less
than $1,000, and fifty-three places above the maximum in
compensation, the number of positions remaining within the
scope of the order is one hundred and ninety-six. This number
will undoubtedly be increased by the inclusion of consular
officers whose remuneration in fees, now less than $1,000,
will be augmented with the growth of our foreign commerce and
a return to more favorable business conditions. In execution
of the Executive order referred to, the Secretary of State has
designated as a board to conduct the prescribed examinations
the Third Assistant Secretary of State, the Solicitor of the
Department of State, and the Chief of the Consular Bureau, and
has specified the subjects to which such examinations shall
relate.
"It is not assumed that this system will prove a full measure
of consular reform. It is quite probable that actual
experience will show particulars in which the order already
issued may be amended, and demonstrate that, for the best
results, appropriate legislation by Congress is imperatively
required. In any event these efforts to improve the consular
service ought to be immediately supplemented by legislation
providing for consular inspection. This has frequently been a
subject of Executive recommendation, and I again urge such
action by Congress as will permit the frequent and thorough
inspection of consulates by officers appointed for that
purpose or by persons already in the diplomatic or consular
service. The expense attending such a plan would be
insignificant compared with its usefulness, and I hope the
legislation necessary to set it on foot will be speedily
forthcoming.

"I am thoroughly convinced that in addition to their salaries

our ambassadors and ministers at foreign courts should be
provided by the Government with official residences. The
salaries of these officers are comparatively small and in most
cases insufficient to pay, with other necessary expenses, the
cost of maintaining household establishments in keeping with
their important and delicate functions. The usefulness of a
nation's diplomatic representative undeniably depends upon the
appropriateness of his surroundings, and a country like ours,
while avoiding unnecessary glitter and show, should be certain
that it does not suffer in its relations with foreign nations
through parsimony and shabbiness in its diplomatic outfit.
These considerations and the other advantages of having fixed
and somewhat permanent locations for our embassies, would
abundantly justify the moderate expenditure necessary to carry
out this suggestion."

Message of the President

(54th Congress, 1st Session,
 House Documents, volume 1).

UNITED STATES OF AMERICA: A. D. 1895 (December).

Message of President Cleveland on the boundary dispute
between Great Britain and Venezuela.
Prompt response from Congress.

On the 17th of December, 1895, the country was startled and

the world at large excited by a message from President
Cleveland to Congress, relating to the disputed boundary
between British Guiana and Venezuela, and the refusal of the
British government to submit the dispute to arbitration.

See, (in this volume),

VENEZUELA: A. D. 1895 (DECEMBER).

The tone in which the President recommended the appointment of

a commission to ascertain the "true divisional line" between
Venezuela and British Guiana, with a view to determining the
future action of the United States, was peremptory and
threatening enough to awaken all the barbaric passions which
wait and watch for signals of war; and Congress, in both
branches, met the wishes of the President with the singular
alacrity that so often appears in the action of legislative
bodies when a question arises which carries the scent of war.
The House refused to wait for any reference of the matter to
its Committee on Foreign Relations, but framed and passed at
once (December 18) without debate or division, an act
authorizing the suggested commission and appropriating
$100,000 for the expenses of its work.
{558}
In the Senate there were some voices raised against needless
and unseemly haste in the treatment of so grave a proposition.
Senator Teller, of Colorado, was one who spoke to that effect,
saying: "I do not understand that our great competitor in
commerce and trade, our Great English-speaking relative, has
ever denied our right to assert and maintain the Monroe
doctrine. What they claim is that the Monroe doctrine does not
apply to this case. Whether it applies to this case depends upon
the facts, which are unknown to us, it appears. If I knew what
the facts were, as an international lawyer I would have no
difficulty in applying the law. As a believer in the American
doctrine of the right to say that no European power shall
invade American soil, either of North or South America, I
should have no trouble in coming to a conclusion. Is it an
invasion of American soil? I do not know that. I repeat, I
thought I did. I have found that I do not.

"If the President of the United States had said that in the
Department of State they had determined what was the true line
between the British possessions and Venezuela, and if he had
said, 'We are confident that the British Government, instead
of attempting to arrange a disputed line, is attempting to use
this disputed line as a pretense for territorial acquisition,'
no matter what may be the character of the Administration,
whether Democratic or Republican, I would have stood by that
declaration as an American Senator, because there is where we
get our information upon these subjects, and not from our own
judgment. We must stand by what the Department says upon these
great questions when the facts are ascertained by it. The
President says that he needs assistance to make this
determination. We are going to give it to him. Nobody doubts
that. The only question is, how shall we give it to him? I am
as firm a believer in the Monroe doctrine as any man who
lives. I am as firm a believer as anyone in the maintenance of
the honor of the American people, and do not believe it can be
maintained if we abandon the Monroe doctrine.

"Mr. President, there is no haste in this matter. The dispute

is one of long standing. Great Britain is not now taking any
extraordinary steps with reference to the control of the
territory in dispute. They took, it is said, five months to
answer our Secretary's letter of July 20. Mr. President, the
time was not excessive. It is not unreasonable in diplomatic
affairs that there should be months taken in replying to
questions of so much importance. We may properly take months,
if we choose, to consider it before we plant ourselves upon
what we say are the facts in this case. I repeat, so far as
the American people are concerned, the Monroe doctrine is not
in dispute, is not in doubt, whatever may be the doubt about
the facts in this case. If the facts are not ascertained, we
must, before we proceed further, ascertain them.

"This is a very important question. It is not a question of

party politics. It is not a question that any political party
ought to take advantage of to get votes. The political party
that attempts to make capital out of this question will find
that it is a loser in the end. The American people will not be
trifled with on a question of this kind. If the other side of
the Chamber, or the Administration, or anybody, attempts to
make capital out of it they will find that they will lose in
the end, as we should lose on our side if we should be foolish
enough, as I know we are not, to attempt to make capital out
of it in any way. … This question is of so much importance
that I do not care myself if the bill goes to the Committee on
Foreign Relations and lies there a month. You will not impress
the world with our solidarity and solidity on this question by
any haste in this body. Let this proceeding be a dignified
proceeding. Let the bill go to the committee. Let the
committee take their time on it. Let them return it here and
say what is the best way by which we can strengthen the hands
of the President of the United States in his efforts to
maintain this American doctrine.

"Mr. President, I am not one of those who want war. I do not

believe in war. I believe in this case Great Britain made a
great mistake when she said she would not arbitrate, and I
have faith enough in the love of justice and right that
pervades the people of Great Britain to believe that on second
sober thought they will submit this question to arbitration,
as many of their representative men have declared they are
willing to submit all questions of this character. … Let this
bill go to the committee. Let it be considered. If the
committee wants a week, ten days, or two weeks, or a month,
let the committee take it. Nothing will be lost. Great Britain
will not misunderstand our attitude. She does not misunderstand
it now. She knows just as well how we feel upon these subjects
as she will when we pass this bill. She has had it dinned in
her ears again and again from nearly every Secretary of State
that we were not willing to abandon the Monroe doctrine, nor
view with indifference the improper interference of any
European power with any existing American Government, whether
such interference is a violation of the Monroe doctrine or
not."

Congressional Record,
December 19, 1895, page 246.

Senator Call made a similar appeal, saying: "As to all this

talk about war, in my opinion there is no possibility of war.
There can be, and ought to be, no possibility of it. The
enlightened sentiment of the nations of the world would forbid
that there should be a war between this country and England
upon this question. Nevertheless, it would be the duty of this
country to maintain by force of arms the proposition that
there shall be no forcible establishment of European
institutions and European Governments over any portion of this
territory. Who can entertain the idea that war can be made
with Great Britain, and that the people of the British Empire
will permit that Government to engage in war upon a question
of boundaries which is not sustained by the facts of the case,
but a mere aggression, and that the peace of mankind shall be
disturbed by it. …

"I agree with the Senator from Ohio [Mr. Sherman] that there
is no necessity for haste in this action and that it comports
better with the dignity of Congress for the Senate of the
United States and the House of Representatives to declare that
 this Government will firmly maintain, as a definite proposition,
that Venezuela shall not be forced to cede any portion of her
territory to Great Britain or to recognize a boundary line
which is not based upon the facts of history and upon clear
and ascertained proof.
{559}
It seems to me, Mr. President, that all this discussion about
war should not have place here, but that we should make a bold
and independent and firm declaration as to the proper policy
of this Government, and vote the President of the United
States the money necessary, in his judgment, to carry out that
declaration so far as obtaining information which may be
desired. …

"The possibility that war between these two nations will be

the result of our defending the right of Venezuela to the
integrity of her territory against its forced appropriation by
England should not be entertained. These two nations, the
United States and Great Britain, are the main pillars of the
civilization of the world, neither can afford to demand of the
other anything that is wrong or any injustice to the other.
Great Britain recognizes the supremacy of the United States in
the Western Hemisphere, and it is sufficient for them to know
that we will maintain this with all the power of the Republic,
and that this is not an idle menace.

"This is my view of the situation. The President has done his

duty. He has recommended that the traditional policy of this
country to protect all people who establish governments of
their choice against forcible intervention by European powers,
under whatever pretense, whether by claiming fictitious
boundaries and enforcing their claim, or by any other means,
and that we will be the judge of this, but that we are ready
to submit the facts to the judgment of a fair arbitration. It
is sufficient for us to sustain this declaration and for us to
provide the means of obtaining the information necessary for
an intelligent judgment on the question. It will suffice for
 the able statesman who represents the Government of Great
Britain to know and to inform his Government that the people
of the United States are united in the determination to
maintain and defend this policy with all their power, and a
peaceable settlement of the question will be made."

Congressional Record,
December 20, 1895, page 264.

The Senate was persuaded to refer the House Bill to its

Committee on Foreign Relations, but the Committee reported it
on the following day (December 20), and it was passed without
division.

UNITED STATES OF AMERICA: A. D. 1895-1896 (December-January).

The feeling in England and America over the
Venezuela boundary dispute.

Happily President Cleveland's Message did not provoke in

England the angry and combative temper that is commonly roused
by a demand from one nation upon another, made in any
peremptory tone. The feeling produced there seemed to have in
it more of surprise and regret than of wrath, revealing very
plainly that friendliness had been growing of late, much
warmer in English sentiment toward the American Republic than
in American sentiment toward England. Within the past thirty
years there had been what in France would be called a
"rapprochement" in feeling going on between the two peoples;
but the rate of approach had been greater on one side than on
the other, and neither had understood the fact until it was
brought home to them by this incident. There seems to be no
doubt that the English people were astonished and shocked by
the sudden prospect of a serious quarrel with the United
States, and that Americans were generally surprised and moved
by the discovery of that state of feeling in the English mind.
The first response in the United States to the President's
message came noisily from the more thoughtless part of the
people, and seemed to show that the whole nation was fairly
eager for war with its "kin beyond sea." But that was a
short-lived demonstration. The voices that really speak for
the country soon made themselves heard in a different
tone,—anxious to avert war,—critical of the construction that
had been given to the Monroe doctrine by President Cleveland
and his Secretary of State,—earnestly responsive to the
pacific temper of the English public,—and yet firm in
upholding the essential justice of the ground on which their
government had addressed itself to that of Great Britain. The
feeling in the two countries, respectively, at the beginning
of 1896, appears to have been described very accurately by two
representative writers in the "North American Review" of
February in that year. One was Mr. James Bryce, the well-known
English student of American institutions—author of "The
American Commonwealth"—who wrote:

"Those Englishmen who have travelled in America have of course

been aware of the mischief your school-books do in teaching
young people to regard the English as enemies because there
was war in the days of George III. Such Englishmen knew that
as Britain is almost the only great power with which the
United States has had diplomatic controversies, national
feeling has sometimes been led to regard her as an adversary,
and displays of national feeling often took the form of
defiance. Even such travellers, however, were not prepared for
the language of the President and its reception in many
quarters, while as to Englishmen generally, they could
scarcely credit their eyes and ears. 'Why,' they said, 'should
we be regarded as enemies by our own kinsfolk? No territorial
dispute is pending between us and them, like those we have or
have lately had with France and Russia. No explosions of
Jingoism have ever been directed against them, like those
which Lord Beaconsfield evoked against Russia some twenty
years ago. There is very little of that commercial, and none
of that colonial, rivalry which we have with France and
Germany, for the Americans are still chiefly occupied in
 developing their internal resources, and have ample occupation
for their energy and their capital in doing so. Still less is
there that incompatibility of character and temper which
sometimes sets us wrong with Frenchmen, or Russians, or even
Germans, for we and the Americans come of the same stock,
speak the same language, read the same books, think upon
similar lines, are connected by a thousand ties of family and
friendship. No two nations could be better fitted to
understand one another's ideas and institutions. English
travellers and writers used no doubt formerly to assume airs
of supercilious condescension which must have been offensive
to Americans. But those airs were dropped twenty or thirty
years ago, and the travellers who return now return full of
gratitude for the kindness they have received and full of
admiration for the marvellous progress they have witnessed. We
know all about the Irish faction; but the Irish faction do not
account for this.
{560}
So we quite understand that resentment was caused in the North
and West of America by the attitude of our wealthy class
during the Civil War. But that attitude was not the attitude
of the British nation. … Our press, whose tone often
exasperates Continental nations, is almost uniformly
respectful and friendly to America. What can we have done to
provoke in the United States feelings so unlike those which we
ourselves cherish?'

"In thus summing up what one has been hearing on all sides in
Britain during the last fortnight, I am not exaggerating
either the amazement or the regret with which the news of a
threatened breach between the two countries was received. The
average Englishman likes America far better than any foreign
nation; he admires the 'go,' as he calls it, of your people,
and is soon at home among you. In fact, he does not regard you
as a foreign nation, as any one will agree who has noticed how
different has been the reception given on all public occasions
to your last four envoys, Messrs. Welsh, Lowell, Phelps, and
Lincoln (as well as your present ambassador) from that
accorded to the ambassadors of any other power. The educated
and thoughtful Englishman has looked upon your Republic as the
champion of freedom and peace, has held you to be our natural
ally, and has even indulged the hope of a permanent alliance
with you, under which the citizens of each country should have
the rights of citizenship in the other and be aided by the
consuls and protected by the fleets of the other all over the
world. The sentiments which the news from America evoked were,
therefore, common to all classes in England. … Passion has not
yet been aroused, and will not be, except by the language of
menace."

J. Bryce,
British Feeling on the Venezuelan Question
(North American Review, February, 1896).

The writer who described American feeling, or opinion, in the

same magazine, was Mr. Andrew Carnegie, who said: "In the
United States, East, West, North and South, from which
divergent voices were at first heard, there is but one voice
now. Public opinion has crystallized into one
word—arbitration. In support of that mode of settlement we now
know the nation is unanimous. The proofs of this should not
fail to carry conviction into the hearts of Britons. The one
representative and influential body in the United States which
is most closely allied with Britain not only by the ties of
trade, but by the friendships which these ties have created,
is the Chamber of Commerce of New York. If that body were
polled by ballot, probably a greater proportion of its members
than of any other body of American citizens would register
themselves as friendly to England. So far did the feeling
extend in this body, that a movement was on foot to call a
meeting to dissent from the President's Message. Fortunately,
wiser counsels prevailed, and time was given for an
examination of the question, and for members to make up their
minds upon the facts. The result was that at the crowded
meeting subsequently held, there was passed a resolution, with
only one dissenting voice, in favor of a commission for
arbitration. In the whole proceedings there was only one
sentiment present in the minds of those assembled: 'this is a
question for arbitration.' …

"Every nation has its 'Red Rag,' some nations have more than
one, but what the 'Right of Asylum' is to Great Britain, the
Monroe Doctrine is to the United States. Each lies very deep
in the national heart. Few statesmen of Great Britain do not
share the opinion of Lord Salisbury, which he has not feared
to express, that the 'Right of Asylum' is abused and should be
restricted, but there has not arisen one in Britain
sufficiently powerful to deal with it. The United States never
had, and has not now, a statesman who could restrain the
American people from an outburst of passion and the extreme
consequences that national passion is liable to bring, if any
European power undertook to extend its territory upon this
continent, or to decide in case of dispute just where the
boundary of present possessions stand. Such differences must
be arbitrated. …

"In his speech at Manchester Mr. Balfour said he 'trusted and

believed the day would come when better statesmen in
authority, and more fortunate than even Monroe, would assert a
doctrine between the English-speaking peoples under which war
would be impossible.' That day has not to come, it has
arrived. The British Government has had for years in its
archives an invitation from the United States to enter into a
treaty of arbitration which realizes this hope, and Mr.
Balfour is one of those who, from their great position, seem
most responsible for the rejection of the end he so ardently
longs for. It is time that the people of Great Britain
understood that if war be still possible between the two
countries, it is not the fault of the Republic but of their
own country, not of President Cleveland and Secretary of State
Olney, but of Prime Minister Salisbury, and the leader of the