Punishment in the legal since is for one to serve some type of retribution for one's harm to society.
If you think its a outdated principle - well your entitled to your opinion no matter how incorrect it is.
Society must have a way to insure that those who break the laws are made aware of how much society is dissatified with their behavior. The degree of punishment should have some correlation to the crime that the individual committed.
And yes the state or society can deprive someone of their basic freedoms - especially if the behavior of the individual deprived someone of their basic freedoms or property. The basic moral of an eye for an eye still applies to society. (Just to make BP Puke his guts out.)
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