Separation of money and state

The separation of money and state is the proposed abolition of public authority over monetary affairs. The claim is essential to many classical liberal proponents, and markedly opposes the neo-classical, charlatist and monetarist macroeconomic theories. It also differs from free banking (which does not preclude an official currency), and full reserve or gold standard models (that the government needs to enforce).
Overview
Historically, classical liberals and libertarians share the same scepticism about the idea of macroeconomic policy setting by monopolistic institutions. They reject all types of central economic planning, including the setting of interest rates and management of the money supply. Economists such as Ludwig von Mises or Friedrich von Hayek were among the most consistent supporters of that idea in the twentieth century.
However, contrary to proponents of the gold standard (which involves public authority), advocates of separation between money and state do not reject fractional reserve banking or credit-based money. They rather assert that producers and consumers should be able to freely choose any medium of exchange proposed on a marketplace of currencies. They most notably reject legal tender laws and banking licenses.
The phrase separation of money and state is used as a reference to the separation of church and state and is meant to claim that such a separation would bring in the twenty-first century, as the former did in the twentieth, enhanced freedom and prosperity.
History of the proposal
The involvement of government into monetary affairs is old as civilisation. The Code of Hammurabi, the best preserved ancient law, was created ca. 1760 BCE in Babylon. Earlier collections of laws include the Code of Ur-Nammu (ca. 2050 BCE), the Code of Eshnunna (ca. 1930 BCE) and the code of Lipit-Ishtar of Isin (ca. 1870 BCE). These laws formalized the role of money in civil society. They set amounts of interest on debt, and taxes in pre-defined legalized money.
Similarly, monetary debasement by government has also been a common historical practice, as an ends to popularity or to war. The most notable example in antiquity is that of the Roman currency. Originally, the Denarius was nearly pure silver, weighing about 4.5 grams. During the Julio-Claudian dynasty, it contained approximately 4 grams of silver, and then was reduced to 3.8 grams under Nero. The Denarius continued to shrink in size and purity, until by the second half of the third century, when it was only about two percent silver, and was replaced by the Argenteus. This practice compelled Cicero to declare: “Nervos belli, pecuniam” (Endless money forms the sinews of war).
The first scholars to have intelligibly argued in favour of stripping the government from the authority of issuing and regulating the supply of money are the early liberals of the Enlightenment. Consequently, the same values underlied the founding documents of the United States. Thomas Jefferson wrote on the issue of banking: "I deny the power of the General Government of making paper money, or anything else, a legal tender".
On the contrary, the WIR Bank introduced a private currency in Switzerland in 1934, which met no resistance by the government, and which arguably lessened the impact of the Great Depression on that country. Although WIR started with only 16 members, today it has grown to include 62,000. Its total assets are approximately 3.0 billion CHF (as of 2005).
More recent attempts at escaping the government monopoly on money was generally met with harsh repression as soon as notability was achieved. The owners of the E-gold private electronic currency were indicted in 2007 by the United States Department of Justice on four counts of violating money laundering regulations; in July 2008 the company and its three directors pleaded guilty to charges of "conspiracy to engage in money laundering" and the "operation of an unlicensed money transmitting business" in the U.S. District Court. Similarly, Liberty Dollar founder Bernard von NotHaus was convicted of counterfeiting on March 18, 2011. Attorney for the Western District of North Carolina, Anne M. Tompkins, described the Liberty Dollar as "a unique form of domestic terrorism" that is trying "to undermine the legitimate currency of this country". The Justice Department press release quotes her as saying: "While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country."
Criticism
Adversaries of a separation between money and government prerogative generally hold the mainstream neo-classical view of macroeconomics.

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