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But he would probably be able to support more grad students, that may not otherwise be able to be in grad school, if he took the military funding.

But do you think that the total number of grad students is a measure of good? If so, it makes sense to get funding for them by any means necessary.

But if not, there is an amount of unethical, unacceptable funding which trumps the good of the grad students it provides for.

Couldn’t some other professor take the available funding, and support those additional students?