To distill the problem: the church should not grasp after the sword of the State. The moral law of God which ought to govern all of society (which can be summarized as "don't hurt people, don't take their stuff, and honor your contracts") is not a particularly Christian principle: it applies to all people in all times and in all places (whether a State exists or not). It is called the "Natural Law."
The goal of the State is Justice, and its means is retribution ("the sword."). The goal of the Church is redemption, and its means is grace/gospel proclamation ("the Word"). To confuse these two is to confuse the two kingdoms and ultimately to confuse the law vs. the gospel.