In this sense, affluence and wretchedness are only two sides of the same coin; the bonds of necessity need not be of iron, they can be made of silk. Freedom and luxury have always been thought to be incompatible, and the modern estimate that tends to blame the insistence of the Founding Fathers on frugality and 'simplicity of manners' (Jefferson) upon a Puritan contempt for the delights of the world much rather testifies to an inability to understand freedom than to a freedom from prejudice. (H. Arendt, On Revolution, ch.3, p.193)
[I]t is beyond doubt  that the young Marx became convinced that the reason why the French Revolution had failed to found freedom was that it had failed to solve the social question. From this he concluded that freedom and poverty were incompatible. His most explosive and indeed most original contribution to the cause of revolution was that he interpreted the compelling needs of mass poverty in political terms as an uprising, not for the sake of bread or wealth, but for the sake of freedom as well. What he learned from the French Revolution was that poverty can be a political force of the first order. (ch.2, pp.61-2)
The subject-matter of the Economics – its subjectum, its substratum, its nervus rerum – is the “system of needs and wants”, it is the sphere of “necessity”, of “pro-duction” that “gravitates” ultimately around “reproduction”. Whether “labor” is seen as the source of “value” or whether value is seen as arising from the “saving” of “labor”, the fundamental reality remains that “labor” is at the heart of “the social question”. That “freedom and poverty” may be incompatible is a problem or “social question” that may be resolved simply by eliminating poverty: but if “freedom and luxury” also are incompatible, as Arendt suggests, then humanity has an even greater problem – and freedom has found an insurmountable barrier!
What Arendt means here, if one subtracts the silly wordiness, is that “the pursuit of luxury” or “private happiness”, may tend to shrink the social, “public” space or universe of human beings so as to render them a-political – with the consequent neglect of the forms of political activity that “freedom” must stand for, in opposition to “passive” liberties. To be “free” is for Arendt to engage actively in the political life of one’s community. To be “at liberty” to do something, instead, is to be the passive beneficiary of a right or benefit “conceded” to oneself by the powers that be. In this sense, one may say that “freedom” and “the pursuit of luxury” may well be at odds, but not be necessarily “incompatible”!
With Classics and Neoclassics, the sphere of “happiness” or “utility” is always “private” because “labor” can be “divided” so the whole point of the “sociality” of social labor is lost. The private sphere is what must be protected from the State – the escape from the state of nature and its necessity. “Freedom” is confused with “liberty”. There is no notion of “public happiness” because “happiness” or “utility” or “pleasure” is limited to the oikos – the household (Alberti in Della Famiglia, to
Arendt rebukes Weber (implicitly) because the latter assumes that the “frugality” of the Founding Fathers was purely Puritanical – when in fact it could have been the “opposite” of retreat from the world, of “renunciation”: it could have been due to a greater concern for “public happiness” and therefore “freedom” than for “private happiness” and therefore “luxury”. This again would contrast with Weber’s interpretation of the spirit of capitalism. Here the “citizen” would prevail over the “bourgeois”. We note that in Weber this “antithesis” does not even begin to exist.
At the same time, Arendt is chastising Marx for equating “freedom from poverty” with “freedom” itself. So the mere fact that people are de-livered from poverty and lifted into luxury does not mean that “freedom” will be instored. Here Arendt is divorcing “wealth” or “value” – economic action – from political institutions: - which is something that neither Marx nor Weber seem able to do because they tie “the most basic needs”, including that for “freedom”, to “the care for material or external goods”, and thereby “reduce” the notion of “freedom” to that of a “material or external good”.
This helps explain why in Weber there is concern for parliamentary democracy only to the extent that it is “functional” to “the rational organisation of labor” and ultimately to “the iron cage”. Both the ascetic ideal and the iron cage are “irrational”. Weber sees the “freedom” of “labor” only as “autonomous market demand” and not in broader “political” terms. This is Arendt’s reproach to Weber. But she forgets, as Marx would pointedly remind her, that her own high-brow conception of “freedom” does not deal integrally, let alone fairly, with what is the most important aspect of human existence under capitalism: - wage labor, which Weber confuses with human living labor.
There can be precious little “freedom” if one is under the yoke of “the rational organisation of ‘free’ labor under the regular discipline of the factory”, as Weber defines “capitalism”. Arendt succeeds only in demonstrating her “poverty of philosophy” by mistaking Marx with Proudhon, the bathetic author of “The Philosophy of Poverty”! That poverty and freedom are two different concepts is blatantly evident. But that Marx ever made the mistake of confusing deliverance from poverty with freedom when in fact he was stating merely that “freedom” offers very little solace to those who are poor, is an accusation unworthy of Arendt’s otherwise admirable intellect.
The crucial difference between Marx and Proudhon is that Marx did not waste time “philosophising” about poverty, preferring instead to find out the social “causes” behind its indisputable existence in capitalism. And the difference between Marx and Weber is that, having found out that capitalism reduces “living labor” to “labor power” – that is, in Weber’s own words, to “the rational organisation of (formally) ‘free’ labor under the regular discipline of the factory” -, Marx could see that the social power of the bourgeoisie consists precisely in this violent “reduction” of human living labor to mere “labor power”. Weber’s phrase “free labor” is not an oxymoron because his “labor” is an entity that can be either “free” or “not free” because he wrongly identifies all human activity with “labor power”. For Marx, instead, it is impossible for “living labor” to be anything but “free”: it is only under the violent command of the capitalist that living labor is turned into “labor power”.
The problem is then to understand what relationship there is between “freedom” and “labor” in Weber’s work. If Weber is concerned about “profit” or “capitalistic economic action”, it is because it is this that “provides” rationally for those “freely expressed” wants and needs of workers that can be provided for most efficiently by “the rational organisation of labor (meaning, “labor power”) under the regular (capitalist) discipline of the factory”.
There is a sense in which the Neoclassical notion of “equilibrium” has to do with the “necessity” of “scarcity” of “provisions” in proportion to endless “wants”. Both Schopenhauer and Robbins understand the Will and “wants”, respectively, as “insatiable”. But whereas Schopenhauer sees this as a motive “to renounce” the world of wants, Robbins takes it more realistically as the “budget constraint” of Neoclassical Theory as “the science of choice” – what makes “choice” subject to “scientific and rational” treatment.
But in order to escape from the “gravitational orbit” of “equilibrium” the “freedom” of the entrepreneur is needed. Indeed, the entire point to Neoclassical value theory is precisely the ability of the capitalist-entrepreneur “to free” himself from “immediate consumption” by “deferring” it and thereby “substituting” it with “labor-saving tools”. It is not the “renunciation” of Schopenhauer whose society is entirely “eristic” and the State can only keep individuals from descending back into the bellum civium. For Neoclassical theory the State can reward the productivity of labor by protecting the “deferral of consumption” of the capitalist entrepreneur.
For Schumpeter this “deferral” is not sufficient because it belongs to the “Statik”: value and profits can arise only from the “creativity” of the entrepreneur who “elevates” and therefore “frees” himself from the gravitational pull of the “static” and reaches the heights of “innovation” by distinguishing his “individuality-personality” (Unternehmer-personalitat) from that of the “mass”. The State must therefore do more than just protect property rights: it must also protect intellectual property from the “rentier” capitalists (finance). Not “labor” but “enterprise” is the gateway to “freedom” and “profit” as against “interest” and “rent”.
With Classical theory, instead, the capitalist appears “redundant” from the start, because “labor” is the source of value. Even Marx’s version preserves this “socially necessary labor time” and the “reproduction of society”. – Whence comes the “surplus value” that capitalists exploit from workers.
But Marx introduces the “use value” of living labor. - So here the sphere of “necessity” is labor-power and that of potential “freedom” is “living labor” (Grundrisse).