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1 George Mason School of Law Contracts I A. Common Law Illegality F.H. Buckley fbuckley@gmu.edu

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Weve discussed why promises should be binding Now: when should they not be binding ? 2

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Weve discussed why promises should be binding Now: when should they not be binding ? Weve assumed that bargains make people better off. But what if they dont? 3

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What does it mean to choose badly? 1.Immoral choices 2.Choices that Harm Others 3.Self-Defeating Choices 4

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1.Immoral Choices Should the state enforce morals? The Borders of Private and Public Law 5

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2.Choices that Harm Others Third Party Externalities But what counts as a harm? 6

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3.Self-defeating Choices Do the parties have capacity to choose wisely Did they consent to the choice? 7

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3.Self-defeating Choices Capacity to Contract I wanted x but somehow I chose not- x. 8

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3.Self-defeating Choices Vices of Consent Fraud Duress Unconscionability? 9

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Mill On Liberty (1859) What does this mean? It really is of importance, not only what men do, but also what manner of men they are that do it. Among the works of man, which human life is rightly employed in perfecting and beautifying, the first in importance surely is man himself. 10

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Immoral Choices Wait, that was a value judgment!!!! 11

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Immoral Choices The moral landscape: subjectivists and anti-subjectivists Subjectivism: Each individual is the source of his personal moral judgment and there is no external basis for morality (relativism) Anti-subjectivism: An individuals moral judgment may be second-guessed, even when the individual holds it sincerely 12

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Immoral Choices Is there such a thing as being too judgmental? 13

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Immoral Choices Is there such a thing as being too judgmental? Especially when the state enforces morals? 14

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Enforcing morality 15 MoralsAnti- subjectivism Subjectivism

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Enforcing morality 16 MoralsAnti- subjectivism Subjectivism LawPerfectionism (Illegality) Neutralism

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Mills harm principle: The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. Mill, On Liberty (1859) 17

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Neutralism 18

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John Stuart Mill & Harriet Taylor 19

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The Film Version: as done by Merchant & Ivory With Hugh Grant as JSM 20

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The Film Version And Emma Thompson As Harriet Taylor 21

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Hi Mom. Hi Dad. Im home! And Jerry Mathers As The Beaver 22

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Mills harm principle What does this mean? It is proper to state that I forego any advantage which could be derived to my argument from the idea of abstract right as a thing independent of utility. I regard utility as the ultimate appeal on all ethical questions 23

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Mills harm principle The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. And just what does that mean? 24

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Mills harm principle The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. Self-regarding harms dont provide a basis for state interference 25

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Mills harm principle So what does that leave? What choices would Mill restrict? 26

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Neutralism So what does that leave? Other-regarding harms: Externalities 27

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Neutralism So what does that leave? Other-regarding harms: Externalities Children, etc. The time when mankind have become capable of being improved by free and equal discussion 28

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The Legal Response Statutory and Common Law Illegality 29

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30 Statutory and Common Law Illegality Contracts rendered illegal by statute: Watts v. Malatesta 481 Contracts illegal at common law: Baby M 487

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Statutory Illegality: Gambling 31 The game is pool straight pool

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Statutory Illegality: Gambling 32 The Hustler Looks like a church Yeah. The Church of the Good Hustle.

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Why should gambling be stigmatized? 33

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34 Is gambling inconsistent with the norms of capitalism? 34 Daniel Bell, The Cultural Contradictions of Capitalism You can scissors-and-paste the Ross Douthat piece

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Gambling: Criminal Sanctions VA 18.2-325. 1. "Illegal gambling" means the making, placing or receipt, of any bet or wager in this Commonwealth of money or other thing of value, made in exchange for a chance to win a prize, stake or other consideration or thing of value, dependent upon the result of any game, contest or any other event the outcome of which is uncertain or a matter of chance NY 991 in Watts 35

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Gambling: Civil Law Effects VA 11-14. Gaming contracts void. Except as otherwise provided in this section, all wagers, conveyances, assurances, and all contracts and securities whereof the whole or any part of the consideration is money or other valuable thing won, laid, or bet, at any game, horse race, sport or pastime, and all contracts to repay any money knowingly lent at the time and place of such game, race, sport or pastime, to any person for the purpose of so gaming, betting, or wagering, or to repay any money so lent to any person who shall, at such time and place, so pay, bet or wager, shall be utterly void. NY 992 in Watts 36

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But its OK when we do it 11-14. Gaming contracts void. Except as otherwise provided in this section, all wagers, conveyances, assurances, and all contracts and securities whereof the whole or any part of the consideration is money or other valuable thing won, laid, or bet, at any game, horse race, sport or pastime, and all contracts to repay any money knowingly lent at the time and place of such game, race, sport or pastime, to any person for the purpose of so gaming, betting, or wagering, or to repay any money so lent to any person who shall, at such time and place, so pay, bet or wager, shall be utterly void. Notwithstanding any other provision of law, a contract governing the distribution of state lottery proceeds shall be valid and enforceable as between the parties to the contract. 37

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Watts at 481 What happened 38

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Watts 39 Lost and paid $37,500 Lost and paid net $100,000 sues to recover his losses. Can offset against this claim his far greater losses to ?

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Watts 40 What does Ex turpi causa oritur non actio mean? 40

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Watts 41 What does Ex turpi causa oritur non actio mean? Contract void as to future performance 41

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Watts 42 How as this changed by NY 994? 42

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Watts 43 How as this changed by NY 994? any person can recover gambling losses 43

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Watts 44 How as this changed by NY 994 Which rule has better incentive effects? 44

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Watts 45 What does In pari delicto portior est conditio defendentis mean? 45

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Wait a minute Just how do professional gamblers collect their winnings? 46

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How do professional gamblers collect their winnings? Remember Nick the Chin 47 Im tinkin youse should pay what youse owe

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The real problem Is every contract made in breach of statute void for illegality? 48

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Simple regulations with no criminal penalty attached If breached, what are the consequences in contract law? 49

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Not every breach of a stature makes a contract unenforceable Restatement 181. If a party is prohibited from doing an act because of his failure to comply with a licensing, registration or similar requirement, a promise in consideration of his doing that act or of his promise to do it is unenforceable on grounds of public policy if (a) the requirement has a regulatory purpose, and (b) the interest in the enforcement of the promise is clearly outweighed by the public policy behind the requirement. 50

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Statutory Illegality What is not a regulatory purpose Cf. Restatement 181, Illustration 1. 51

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Statutory Illegality What does public policy mean here? Cf. Restatement 181 illustrations 2 and 4 52

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Should yoga studios be licenced? 53 Yoga practitioners experience, love abundance and true fulfillment in their lives: Deepak Chopra

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I assume youve all had your chakras aligned recently A customer at a yoga studio runs up a tab of $1,000. The studio is not licensed. 54

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I assume youve all had your chakras aligned recently A customer at a yoga studio runs up a tab of $1,000. The studio hasnt paid city taxes for the last two years. 55

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Common Law Illegality That was contracts illegal by statute but what about contracts illegal at common law? 56

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Common Law Illegality 57 Restatement 192 ff. Promises to commit a tort

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58 Common Law Illegality Restatement 178(1): Unenforceability on Grounds of Public Policy (1) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.

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59 Common Law Illegality Restatement 178(2) (2) In weighing the interest in the enforcement of a term, account is taken of (a) the parties' justified expectations, (b) any forfeiture that would result if enforcement were denied, and (c) any special public interest in the enforcement of the particular term.

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60 Common Law Illegality Restatement 178(3): Unenforceability on Grounds of Public Policy (3) In weighing a public policy against enforcement of a term, account is taken of: (a)the strength of that policy as manifested by legislation or judicial decisions, (b) the likelihood that a refusal to enforce the term will further that policy, (c) the seriousness of any misconduct involved and the extent to which it was deliberate, and (d) the directness of the connection between that misconduct and the term.

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The effect of arbitration clauses Buckeye at 485: Whats the argument that the arbitration clause is voided? And what did the Court hold? 61

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Common Law Illegality: Baby M at 487 What happened? 62

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Common Law Illegality: Baby M at 487 How do you see Mary Beth Whitehead? 63

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Mary Beth Whitehead 64

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Baby M Mary Beth Whitehead 65

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Baby M The Sterns 66

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Baby M 67 Why did the Whiteheads enter into the contract?

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Baby M 68 Why did the Sterns not have their own children?

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So what did the court hold? 69

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So what did the court hold? Why was it contrary to statute? 70

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So what did the court hold? Why was it contrary to statute? Was there an intentional abandonment 71

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So what did the court hold? Why was it contrary to public policy? 72

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So what did the court hold? OMG, no lawyers, no psychologists to advise her!!!! 73

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Baby M: Who gets the child? 74

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Baby M: Who gets the child? Whos got the better c.v.? 75 Who is more likely to: subscribe to The New Republic? attend an Arthur Miller play? read a Jonathan Franzen novel?

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Baby M 76 Did Whiteheads actions render her an unfit mother?

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Surrogacy Contracts Should they be enforced? There are, in a civilized society, some things that money cannot buy Name some other things 77

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Surrogacy Contracts Should they be enforced? How would you have redrafted the Whitehead contract? 78

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Surrogacy Contracts Should they be enforced? Note that the industry has expanded, AFTER Baby M. 79

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Surrogacy Contracts Should they be enforced? Note that the industry has expanded, AFTER Baby M. Why not just enforce them, if the yuppies win anyway? 80

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Surrogacy Contracts Are there any limits? An ultrasound reveals that the child has Downs Syndrome. The agreement provides that it is void in this case. 81

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What about the following? A sale of a kidney? A futures contract for a kidney? 82

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What about the following? The sale of a child? 83

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What about the following? The sale of a child? Why do we find this revolting? Are we wrong to do so? 84

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85 George Mason School of Law Contracts I A. Common Law Illegality F.H. Buckley fbuckley@gmu.edu

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Recall Mills harm principle The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. I.Why not restrict self-regarding harms (or promote self-regarding benefits)? 86

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Recall Mills harm principle The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. I.Why not restrict self-regarding harms (or promote self-regarding benefits)? II.What counts as a harm? 87

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Self-regarding harms: Why ban hog- dog fights? 88 Meet Ari arriving at Reagan Airport

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What counts as evidence of a self-regarding harm or benefit? Repugnance and approbation? Economic or survey evidence 89

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Repugnance: Are Emotions Moral? Most of us feel repugnance at things like hog-dog fights, even if we cannot articulate a rational basis for our feelings E.g., desecrating a dead body 90

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Are Emotions Moral? Most of us feel repugnance at things like hog-dog fights, even if we cannot articulate a rational basis for our feelings Should this inform our moral code? 91

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Are Emotions Moral? Most of us feel repugnance at things like hog-dog fights, even if we cannot articulate a rational basis for our feelings Should this inform our moral code? Or our legal code? 92

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Are Emotions Moral? Most of us feel repugnance at certain things, even if we cannot articulate a rational basis for our feelings Lets say we are taught not to feel repugnance for desecrating a dead body, by a social worker. Have we lost something of value? Or have we been morally improved? 93

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Survey evidence: Marriage and Happiness 94 John F. Helliwell and Shawn Grover, How's Life at Home? New Evidence on Marriage and the Set Point for Happiness NBER Working Paper No. 20794

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Marriage and Happiness Whatever Mill might think, does this offer an argument for state policies that favor marriage? 95

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Marriage and Happiness Whatever Mill might think, does this offer an argument for state policies that favor marriage? E.g., Subsidies for marriage which arent available to the non-married 96

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97 Promises detrimental to marriage Restatement 190(1): a contract is illegal if it would change some essential incident in the marriage relationship in a way detrimental to the public interest Cf. Illustrations 1 and 5 97

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Marriage: Marvin at 499 Does the state have an interest in promoting marriage? And how do the incentives cut? 98 Palimony: Lee Marvin and Michelle Triola 98

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Marriage: Hewitt at 499 Does marriage matter? The casebook describes the Hewitts relationship as merely lacking legal formality 99

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Marriage: Hewitt at 499 Does marriage matter? The casebook describes the Hewitts relationship as merely lacking legal formality Lets say you suggest a divorce to your spouse, for that reason 100

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Recall Mills harm principle The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. II. What counts as a harm? 101

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What counts as a harm: Externalities Externalities are the third party effects where my actions either confer a benefit or impose a cost on others. 102

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103 Three different kinds of capital Physical Capital (e.g. pollution)

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104 Different kinds of capital Physical capital Human Capital Intelligence and health Private virtue, good character

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105 Different kinds of capital Physical capital Human Capital Social Capital Do you care who your neighbors are?

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Social Externalities Are we influenced by the moral feelings of those around us? 106

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107 Social Capital: Do norms rub off on other people?

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108 What counts as a harm? I fully admit that the mischief which a person does to himself, may seriously affect, both through their sympathies and their interests, those nearly connected with him, and in a minor degree, society at large.

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109 What counts as a harm? I fully admit that the mischief which a person does to himself, may seriously affect, both through their sympathies and their interests, those nearly connected with him, and in a minor degree, society at large. Does this provide an argument for legislating morals?

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Some remaining issues Slippery slopes Can we trust the state? 110

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111 The Battle of the Slippery Slopes In a slippery slope, I want to do A and do not want to do B. But if I do A I am led into doing B.

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112 The Battle of the Slippery Slopes In a slippery slope, I want to do A and do not want to do B. But if I do A I am led into doing B. Is there a fallacy here?

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113 The Battle of the Slippery Slopes In a slippery slope, I want to do A and do not want to do B. But if I do A I am led into doing B. Is there a fallacy here? Or is this an informational problem?

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114 Slippery Slopes: Perfectionists and Neutralists The Perfectionist fears that a slight change in moral habits will lead to the Decline and Fall of our civilization. 114

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115 Slippery Slopes in Rome Couture, Les Romains de la dcadence, 1847 115

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116 Neutralism and Slippery Slopes The Neutralist fears that any enforcement of morals will lead to the most severe restrictions on liberty.

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Mill on slippery slopes Society can and does execute its own mandates: and if it issues wrong mandates instead of right, or any mandates at all in things with which it ought not to meddle, it practices a social tyranny more formidable than many kinds of political oppression, since, though not usually upheld by such extreme penalties, it leaves fewer means of escape, penetrating much more deeply into the details of life, and enslaving the soul itself. 117

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118 Can the state be trusted to legislate morals?

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119 Can the state be trusted to legislate morals? President Johnson signs the 1964 Civil Rights Act

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120 Can the state be trusted to legislate morals? Jim Crow laws were legislated by the states