ive read a bit but i'm no marx scholar
i think what he's getting at is that making the state free isn't a useful socialist goal, i think the next paragraph makes it pretty clear, "The German Workers' party — at least if it adopts the program — shows that its socialist ideas are not even skin-deep; ... it treats the state rather as an independent entity that possesses its own intellectual, ethical, and libertarian bases." where hes talking about, freedom consists of converting the state to a subordinate entity what i think hes saying is that instead of "freeing the state" you ought to free the people by making the state subordinate to society and abolishing class distinctions.