Chapter 8 — The Separation of Money and State

Thomas H. Greco, Jr.
18 min readJun 8, 2024

Chapter 8 in The End of Money and the Future of Civilization, New 2024 Edition

Erecting the ‘wall of separation between church and state’… is absolutely essential in a free society. — Thomas Jefferson

The Separation of Money and State-Audio narration

The Separation of Church and State

It was not so long ago that virtually every nation of the world had a national religion which was given special privileges and supported in various other ways, and this is still the case in a great many countries. According to a Pew Research Center study, of the 199 countries and territories studied, 43 have an official state religion, and another 40 have a “preferred” or “favored” religion.

The Pew study explains the implications of state preference, saying:

“In some cases, state religions have roles that are largely ceremonial. But often the distinction comes with tangible advantages in terms of legal or tax status, ownership of real estate or other property, and access to financial support from the state. In addition, countries with state-endorsed (or “established”) faiths tend to more severely regulate religious practice, including placing restrictions or bans on minority religious groups.”[1]

Even the American colonies at the time of the Revolutionary War were no exception; each colony had its own official version of Christianity. In the Virginia colony, for example, the Church of England was formally established by the House of Burgesses in 1619.[2] And colonists were legally required to attend its services and, through taxes, to financially support its ministers.[3]

The Separation of Money and State — A Comparison

A useful parallel can be drawn to the necessary separation of money and state. While controversy still persists over the interpretation of the Constitutional separation of church and state, there is general agreement that each individual person should have the freedom to practice whatever religion they might choose, and that the government should not favor any particular religious organization by granting it special recognition, privilege, or financial support.

Inspired most likely by the writings of John Locke, Thomas Jefferson and James Madison championed the idea of the separation of church and state, first in the Virginia Statute of Religious Freedom and later in the United States Constitution. Religious establishments having been long accustomed to enjoying legal privileges from governments around the world, the American colonial governments were reluctant to give them up. Even in the context of late eighteenth century America, there was serious dispute over the allowable extent of religious freedom. Jefferson’s Virginia Statute of Religious Freedom was by no means an easy sell and was bitterly opposed. It was eventually passed in 1786 after the assembly had made significant deletions to Jefferson’s original draft. Those readers who wish to gain a complete picture of it may read the entire original document, but I think it sufficient here to quote only the most pertinent phrases:

“Almighty God hath created the mind free.

… [A]ll attempts to influence it by temporal punishments . . .tend only to beget habits of hypocrisy and meanness and are a departure from the plan of the holy author of our religion, who being lord both of body and mind, yet chose not to propagate it by coercions on either, as was in his Almighty power to do.

…[T]ruth is great and will prevail if left to herself…[S]he is the proper and sufficient antagonist to error and has nothing to fear from the conflict unless by human interposition disarmed of her natural weapons, free argument and debate; errors ceasing to be dangerous when it is permitted freely to contradict them.”[4]

The object of these efforts was, in Madison’s words, to “extinguish forever the ambitious hope of making laws for the human mind.” Having myself spent considerable amounts of time in countries that still have an official religion, I have observed firsthand some of the “habits of hypocrisy and meanness” referred to in that statute.

The United States is recognized as the first country to completely disestablish its government from any religion. This separation was explicitly stated in the Bill of Rights of the U.S. Constitution which was ratified by the colonies in 1791. The First Amendment states, “Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” This amendment is perhaps the most precious jewel in the legacy our Founding Fathers have bequeathed to us.

James Madison, the principal architect of the Bill of Rights, further argued that “practical distinction between Religion and Civil Government is essential to the purity of both.”[5] I argue upon the same philosophical foundation that: the practical distinction between money and civil government is essential to the purity of both.

The Disestablishment of the “Monetary Religion”

As I have maintained from the beginning, the fundamental purpose of money is to facilitate the voluntary exchange of objects of material value between independent persons. The long-established rights of contract and voluntary association argue in favor of the free selection and use by buyers and sellers of the devices and mechanisms that they judge to best serve their mutual interests. To grant “legal tender” status to any particular brand of money, or to support by legislation any particular banking establishment or cartel, is akin to making a law respecting an establishment of religion. Salmon P. Chase, who served as Secretary of Treasury under President Abraham Lincoln and presided over the issuance of the Greenback currency during the Civil War, later as Chief Justice of the Supreme Court, said, “The legal tender quality is only valuable for the purposes of dishonesty. Every honest purpose is answered as well and better without it.[6]

There should be no monopoly of credit, no central authority with exclusive power to issue money, and no forced circulation of any currency. A free and fair society requires that the power to allocate and manage credit must be decentralized, and every currency must be made to make its way in the marketplace on its own merits, and only the issuer of a currency should be required to accept it back as payment. Robert Somers, writing in 1873 about the superior system of Scottish banking, posed the matter clearly, saying:

“The question betwixt a central and a plural issue is in reality a question whether banking is to be confined to the great capitalists, or to a few of the greatest towns, and to the high commerce of nations, or opened up to all classes of people and made to embrace the industry, savings, and interests of the many. The tendency of a State or central form of issue is to aristocratize banking. The effect of a plural issue is to popularize this powerful lever both of moral and material improvement. The one seems, therefore, as comfortable as the other is counter to the social tendencies of the age, and to that ever-advancing impulse to raise, enrich, refine, and brighten the whole body of a people, which is the crowning glory of all civilization.”[7] [emphasis added]

The fact that the establishment of monetary and banking privilege has become general throughout the world is not sufficient reason for its continuance. On the contrary, the evils that have been spawned by such collusion between political power and financial power are just as damaging, or more so, than the collusion between political power and religious power.

Considering this extreme centralization of power and the materialistic mindset that has become pervasive throughout western civilization, it is obvious that there will never be peace in the world so long as those who control our national governments are able to conjure up out of thin air the seemingly endless amounts of pseudo-money they need to pay for wars and whatever else might bolster their political and economic interests. Neither will there be justice and fair dealing so long as the banking cartel maintains its government-granted privilege to exploit the masses by allocating the peoples’ own credit back to them and charging interest for its use. By pretending to encumber itself with debt, the government actually encumbers its citizenry with obligations to surrender real value — goods, services, and other assets — to anyone upon whom the government has lavished its pseudo-money claims. And, by pretending to surrender something of value when it grants a “loan,” the banking cartel is able to impose interest charges and other burdensome fees on the people with the mere stroke of a pen or a few computer keys.

In the previous chapter on inflation, we described how persistent increases in prices result from our failure to perceive these pretenses and from our unquestioning acceptance of government pseudo-money as being legitimate. Historically, it has only been in the face of extreme abuse of the money power that people have been sufficiently motivated to refuse government fiat money despite legal compulsions designed to prevent them doing so.

The established beliefs about money in today’s world have become a sort of religion in which a fundamental tenet holds that government must, either directly or indirectly, have power over the system of money creation and circulation. This erroneous belief has taken the world to the brink of disaster which will surely ensue unless we take steps to depoliticize money by achieving the separation of money and state. To paraphrase Thomas Jefferson, I submit that “erecting the wall of separation between money and state is absolutely essential to having an honest system for exchanging value, building a free society, and maintaining a fair and sustainable economy.”

Many argue that money and state have already been separated because the central bank in most countries, including the United States Federal Reserve, is a private entity that acts independently of their respective governments, but as we’ve already described in Chapter 4, the separation is a mere facade. As numerous Fed chairmen over the years have testified, Congress, under the Constitution, has the ultimate power over the money system, and the power it has allocated to the Fed can be rescinded at any time. But, as we have said, the current arrangement suits the interests of both bankers and politicians very well. It has enabled a small group of powerful (mostly) men to pursue policies that enhance their own wealth and power while undermining popular control of government and efforts to build a society of peace, tranquility, and the common good.

Does anyone really believe that the U.S. government will ever repay its accumulated debt that now (in 2024) amounts to more than $37 trillion, up from $10.8 trillion just 16 years ago, and which is projected by the government itself to reach $54 trillion by 2034? While the central government of the United States is precluded from directly monetizing its debts, that same result is achieved indirectly through the banking system. When a national government “borrows” money to finance its budget deficits, it sells its bonds, notes, and bills on the market. It is not only the portion of the debt that is bought by the Federal Reserve which gets monetized, but also the bonds that are bought by the commercial banks. When a bank buys a government bond, it is actually making a loan to the government; this monetization of government debt has the same effect on prices as a counterfeiter spending counterfeit money into the economy.

When it comes to financing its operations, the government can look either to its current tax revenues or to its future tax revenues. If current tax revenues are deficient, as they almost always seem to be, the government must borrow. When the government borrows in order to finance its deficits, it would appear that it is choosing to tax us later instead of taxing us now. Borrowed money must eventually be repaid out of future revenues, which means there must be eventual budget surpluses sufficient to offset the current budget deficits. But budget surpluses have been few and far between, so governments and central banks together have conjured up another possibility — monetization of the debt and enforced circulation of debased currency under color of law by means of legal tender laws.

As explained in the previous chapter, it is like the farmer adding water to his milk. The part of the debt that is monetized adds “empty dollars” to the money supply, dollars that are not matched by additional goods and services in the market. The portion of the debt not monetized by the banking system is acquired by individuals and institutions who allocate our collective savings to be spent by the government. The situation is very much like the following: Suppose you are a young person regularly putting money aside into a shoe box to save up for your college education, but your drug-addicted parent is regularly taking that money out and replacing it with their own personal IOUs. Will that suffice to get you through college? Only if your parent changes their ways and repays what they owe you. Our government is like that wayward parent. It has been taking real value out of the economy and providing empty promises in return. Will it ever reform itself and start paying back its debt? With the inherent flaws in the present monetary regime, this is a practical impossibility. What then are the likely prospects?

Fiscally irresponsible governments have only two choices: they must either eventually default on their debt repayments — acknowledging that their bonds, bills, and notes are worthless — or they must continue to monetize more and more of their debt. For a country like the United States, which constitutes the world’s biggest market and whose currency serves as the global reserve currency for foreign governments and investors, the former course is unthinkable. That leaves continued monetization, continued bailouts, and inflation. If you can believe the official figures, inflation rates in the United States for the past several years have been modest — in the range of three percent — but at other times they have been much higher. Furthermore, these figures do not seem to reflect the true cost of living. The most common measure of inflation, the Consumer Price Index, has been widely criticized for excluding food and energy prices which make up a large part of the average family’s budget. The cumulative effect over time of government debt has been an enormous decline in the purchasing power of the dollar, as shown in Figure 8.1 below.

Figure 8.1 Purchasing power of US dollar. 1934=100

Under the central banking regime that prevails in virtually every country around the world, money has been politicized. The collusion between politicians and international bankers enables governments to extract wealth from the economy by deficit spending, while banks extract wealth by charging interest on money as they create it by making loans. These two parasitic elements take wealth away from productive members of society and lavish it on military adventures, international intrigues, wasteful boondoggles, and financial finaglers. The truth of the matter is that central banks have one overriding function — to manage the effects of the parasitic drains, i.e., to decide who will pay the price and who will feel the most pain. They can either (1) restrict credit in the private sector, thus causing recessions, bankruptcies, and unemployment; or (2) expand credit and inflate the money supply by monetizing debts (either public or private) which are ultimately uncollectible.

Two Meanings of “Dollar”

Because of general legal tender laws, the “dollar” has come to have two meanings — (1) a medium of exchange or payment (a currency) and (2) the standard value measurement or pricing unit. Any alternative currency or credit system must eventually decouple from “dollars,” in both such meanings, but the more urgent need is to decouple from the official dollar currency as a means of payment.

Delinking from the Dollar as a Payment Medium

To be truly effective in empowering a community and reducing its dependence upon national fiat currencies, a community currency must be created outside of the banking system by allocating and managing the credit of its local producers. As will be described in detail in later chapters, this can be done by reclaiming the power we already have, which is to give credit to those we trust, which is a solid basis for creating our own independent exchange systems using transferable credit claims or currencies. As I’ve pointed out in my previous books and articles, this approach should not be dismissed simply due to the many community currencies that have heretofore failed to produce significant results. The keys to success lie with the basis upon which credits are allocated and the protocols for managing the circulation of credit.[8]

The currency must be created in the process of goods or services changing hands, i.e., it should be “spent into circulation” by local business entities and individuals who are able to redeem it later by providing goods or services that are in everyday demand by local consumers. Such a currency amounts to a credit instrument or IOU of the issuer, an IOU that is voluntarily accepted by some other provider of goods and services (like an employee or supplier) and then circulated and eventually redeemed — not in cash but “in kind” by the original issuer, as depicted in Figure 8.2 below. In this way, community members “monetize” the value of their own production, just as banks monetize the value of their collateral assets when they make a loan to a producer — except in this case, monetization is done by the community members themselves based on their own values and criteria, without the involvement of any government, bank or ordinary financial institution, and without the need to have any official money to begin with.

Figure 8.2 The Currency Issuance, Circulation, and Redemption Circuit

This is what it means to liberate the exchange process, or to restore the “credit commons”[9] and bring it under local control. In this way, a community gains a measure of independence from the supply of official money (dollars, euros, yen) and the policies and decisions of the central bank and the banking cartel. This is the primary mission which needs to be accomplished if we are to transcend the destructive effects of the global monetary and banking regime, devolve power to the local level, and build sustainable economic democracies.

Delinking from the Dollar as a Measure of Value

With regard to the second meaning of the dollar as a measure of value, we need to understand that a standard becomes established by common usage. We in the United States are accustomed to valuing things in dollar units. We know from our everyday shopping experiences what the value of the dollar unit is in terms of the things we buy and in terms of our own earning power. Any new “language of value” will have to be translated into the dollar language that we already understand. How we measure value is a separate question from how we create our own payment media. In the process of monetizing local production as described above, we can choose to give our credit unit any name we wish — be it a val, an acorn, or a cru — but it makes sense to initially declare the value of that unit to be equivalent to that of the national currency unit. Eventually, however, a currency, being a credit instrument, must be denominated in terms of something real — a commodity, a group of commodities, or some useful service.

Stable Value Reckoning

The U.S. dollar was originally defined as a specified weight of fine silver, then later a specified weight of gold, but those objective definitions were obliterated by laws that made paper currency legal tender. So now the value of the dollar unit of measure of value depends entirely upon the value of the dollar currency, but the value of the dollar currency, as we’ve already noted, is continually declining as more of it is issued on an improper basis, particularly on the basis of government debts that will never be repaid and that bring no goods and services concurrently into the market.

In the previous chapter, we described at some length the hyperinflation of the German mark following World War I. It is difficult for people who have not lived through that kind of experience to appreciate what it means or to understand what it takes to avoid it. It was only by defining the mark in concrete, physical terms (in that case, gold) that the German people were able to end that nightmare. Britain, the United States, and the European Union have until recently seen only moderate rates of inflation — so people have become inured to it, accepting it as a natural part of the economic landscape. Neither have they developed the necessary skepticism against legal tender currencies and their issuing agencies. Goods and services and wages are still priced in legal tender currencies, so under these conditions it makes sense to talk about changes in the price of gold or silver or other commodities. But we need to make a shift, thinking not of dollar prices of commodities but instead the commodity price (or value) of dollars. For example, we can think of the currency having a price in terms of silver or gold or other commodities. Applying that reasoning to the US dollar, we would say that the price of silver or gold should not be reckoned in Federal Reserve “dollars” but that the value of Federal Reserve dollars should be reckoned in, for example, silver dollars. The easiest way to do that is to use the original definition of the U.S. dollar, which was 371.25 grains of fine silver. If that value standard were still in effect, what would a Federal Reserve dollar be worth?

While the first edition of this book was being written, the spot price of silver was $16.50 per troy ounce (June 13, 2008). There are 480 grains per troy ounce, so the fiat price of a silver dollar (as originally defined) was $12.76 [(371.25/480) x 16.50=$12.76]. Taking the reciprocal of that number, we get the value of the fiat dollar in silver dollars (as originally defined), which was 0.078 silver dollars, or 7.8 “silver dollar cents.” That’s quite a debasement (more than 92%) of the US fiat dollar since the original silver dollar definition in the late eighteenth century. Bringing it up to date, the market price of silver on April 13, 2024, was $28.11 in fiat dollar terms. Calculating as before, we get the fiat price of a silver dollar as $21.74 [(371.25/480) x 28.11=$21.74]. Taking the reciprocal of that number, we get the value of the fiat dollar in silver dollars (as originally defined) now to be 0.0459 silver dollars, or roughly 4.6 silver dollar cents, which means that the fiat dollar has lost 41% of its value in only the last sixteen years.

A stable value unit will eventually need to be defined in terms of some commodity or group of commodities that are commonly traded. Such a definition will then provide a kind of “Rosetta stone” that will enable us to relate, from day to day and minute to minute, the value of the fiat dollar relative to any private currencies or credit instruments. How an objective value standard and unit of account might be defined has been explained in my previous books and on my website[10] and will be presented again in an appendix to this new volume.

Toward Freedom of Exchange

The separation of money and state implies greater freedom of people to choose which currencies they will use, and to create their own. Buyers and sellers, who are the affected parties in a transaction, should be able to choose the particular credit instruments (money) that best enable their reciprocal exchange. Here are the basic principles that underlie a system of free exchange.

• Buyers and sellers should be free to use any payment medium that is mutually agreeable to them, including the issuance and acceptance of their own credit and currencies.

• Only the issuer of a currency should be obliged to accept it as payment and must always accept it at face value (“at par”).

• There should be no forced circulation of any currency. Legal tender should obligate government only and should not apply to transactions between private parties.

• Governments should give legal tender status only to their own currencies that they spend directly into circulation and should not grant privileged status to the currency of a private central bank or any other private issuer.

• Government currencies should be denominated in objective units against which the market may evaluate them, and governments should oblige themselves to accept their currencies at par regardless of the market rate or discount.

As John Zube puts it, “Currency cannot be acceptable unless it is rejectable.” The freedom to use, refuse, or discount a currency is essential to its acceptability.

[1] Pew Research Center, Oct. 3, 2017, “Many countries favor specific religions, officially or unofficially.” FULL-REPORT-FOR-WEB.pdf (pewresearch.org). Accessed April 14, 2024.

[2] Church of England in Virginia. https://encyclopediavirginia.org/entries/church-of-england-in-virginia/. Accessed May 7, 2024.

[3] Colonial Virginia. https://encyclopediavirginia.org/entries/colonial-virginia/. Accessed May 7, 2024.

[4] Virginia Statute for Religious Freedom. https://cas.umw.edu/cprd/files/2011/09/Jefferson-Statute-2-versions.pdf. Accessed May 7, 2024.

[5] Separation of Church and State: A Libertarianism.org Guide. Accessed May 7, 2024.

[6] Cases argued and adjudged in the Supreme Court of the United States‎ — December terms, 1870 and 1871. Reported by John William Wallace. Vol. XII. The Banks Law Publishing Co. New York. 1909, Page 579. https://books.google.com/books?id=IgMGAAAAYAAJ&pg=RA3-PA579&dq=legal+tender+quality+is+only+valuable&lr#v=onepage&q=legal%20tender%20quality%20is%20only%20valuable&f=false. Accessed April 13, 2024.

[7] Robert Somers, The Scotch Banks and System of Issue, p. 206.

[8] See my article, Local Currencies — what works; what doesn’t?

https://beyondmoney.net/monographs/local-currencies-what-works-what-doesnt/. Accessed May 8, 2024.

[9] The concept of the “commons” is an ancient one referring to a resource for which there is open access to anyone within a community or geographic area, as opposed to private property or government-owned “public” property. Local rules or social customs may govern some aspects of the use of the shared resource, but these rules or customs do not prevent people from gaining access to the resource in the first place. In the case of money, our collective credit which supports the money and banking system has been privatized and enclosed to serve the interests of a small elite class rather than the members of the community.

[10] An Objective Composite Standard Measure of Value.

https://beyondmoney.net/appendix-b-an-objective-composite-standard-measure-of-value/

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Thomas H. Greco, Jr.
Thomas H. Greco, Jr.

Written by Thomas H. Greco, Jr.

Scholar, author, educator, community economist, leading authority on moneyless exchange and private currencies. http://beyondmoney.net.

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