Interesting that this should come up just after the death of
Barney Rosset. He is, as some of you must know, the man who went to court to publish that obscene book by D.H. Lawrence and was taken there for publishing Henry Miller. He also published Samuel Beckett, James Joyce, William Burroughs, and others considered coarse in their day, along with the authors of numerous erotic novels in the Evergreen Series -- many of which are no longer relegated to mere erotica status.
Well into his old age, Rosset published the Evergreen Review and erotic novels under the Blue Moon Books imprint, championing erotica as literature in the name of free speech. Certain of those works he published -- once denounced as pornography -- are now considered classics.
The question is not whether Paypal is technically within its rights. It is whether a transaction processing company that blackmails a bookstore WRT content deserves our future business. If we choose to vote yes with our credit cards, then a time might come when controversial books won't be widely sold to us at all. The fewer the restrictions on literary content, the better for all of us.
This is true whether the restrictions are enforced by governments or monopolies.