"The last part, which I put in bold, seems overly optimistic to me. I'm not sure that social pressure was ever a solid deterrent for cheating one's neighbors."
It does when if you do, your children and wife will be hurt by your actions. It does when your neighbors can take revenge directly.
"Now whether separate currencies will help to suppress it is another matter. I'm not sure though how a large country such as the US, which presently has one currency, could realistically split up into a large number of city-states where each has their own. The division of the country does not seem that outlandish but the division of the currency seems like a big problem."
If you look at the Where's George data, we already do this. We may call them all dollars, but in actual trade, we're 11 different markets with very little to no trade between.
"I'm not sure that the loss of efficiency is a net gain for many people. While it would put a lot of people to work would it not also leave a lot of people to find themselves in jobs with no demand?"
The demand comes from the lack of trade with other regions.
" If everyone is producing food, shelter, and clothing, then what happens to the demand for computer programmers (for example)?"
Data is always good. Data is what creates more yield per acre.
" To me it seems that you are calling for a deterioration of society as we know it (I don't mean simply by reduction of that one job that I specified but others as well)."
It's worse than that. I'm calling for the destruction of the greedy, centralized, bureaucratic society as we know it.