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It should be legal but strictly regulated. Cut out the criminals and profiteers, and make it a more "clean" trade.
Prostitution is one of those things that will always exist, in one shape or form. It's better to have it in a regulated form, than banning it altogether and then pretending it won't happen anyway. I believe Thomas Aquinas even argued against the idea to ban prostitution, because society needed this outlet. Every palace needs to have a cesspool, otherwise the entire palace will reek of shit.
Also, the rape stats would skyrocket if you banned it altogether.
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