“In the late 19th century the coast of Angola was home to a flourishing export market that shipped African goods to Europe. On the one side of this market were European settlers who operated the export industry, and on the other side were African producers in the remote interior who harvested the goods required for export. Connecting these two groups were African middlemen who traveled to the interior to collect the goods and then carried them to the coast for export.In the 19th century this region was for all intents and purposes anarchic. Although Europeans had settlements with European laws and interior African communities had their own, largely informal institutions of internal governance, there was no government to oversee the interactions between members of these groups or their interactions with the middlemen. The problem this created was that middlemen tended to be substantially stronger than interior producers, posing the threat of force described above. Why pay producers for goods if middlemen could use their superior strength to simply steal them instead?
Like with the pirates, instead of throwing in the towel and either accepting that they would be routinely plundered or stopping productive activities altogether, so that there would be nothing for middlemen to steal, African producers devised an institutional solution to the problem of force that allowed them to realize the benefits of trade with these bandits.
The institution they devised for this purpose was credit. The key to understanding how credit solved the problem of force and facilitated peaceful exchange is straightforward: you can’t steal goods that aren’t yet produced, but you can trade with them.
Here’s how the credit institution worked: Producers would not produce anything today but would instead wait for middlemen to arrive in their villages looking for goods to plunder. With nothing available to steal the middlemen had two options: return to the coast empty-handed after having made a trip to the interior, or make an agreement with producers to supply the goods they required on the basis of credit. In light of the costliness of their trip to the interior, middlemen frequently chose the latter
According to their credit arrangements, middlemen advanced payment to producers and agreed to return later to collect the goods they were owed. When they returned for this purpose all that was available for taking was what they were owed, so stealing was not an option. Instead, middlemen frequently renewed the credit agreement, which initiated a subsequent round of credit-based trade, and so on.
This simple arrangement performed two critical functions in allowing producers to overcome the threat of force that middlemen presented. First, it enabled them to avoid being plundered, as though they had not produced anything at all, but also to realize the gains from trade, as though middlemen did not pose a threat of violence. Second, it transformed producers in the eyes of middlemen from targets of banditry into valuable assets they had an interest in protecting. If middlemen wanted to be repaid they needed to ensure that their debtors remained alive and well enough to produce. This meant abstaining from violence against producers and protecting producers against the predation of others.”
This fascinating scenario answers one of the most common objections to libertarianism. That there would be no way by which a weaker group could protect itself from a stronger group intent on plundering it.
It demonstrates that people are capable of ingenious solutions to disparities in power on their own, if a huge state machinery does not get in the way.
I am going to file this away along with the earlier Rothbard post on Ireland in a new section which will contain vignettes of real world example of libertarian living. A picture being worth a thousand words usually. And one from history worth ten thousand.
Update: I found an interesting response from Dani Rodrik, “The Limits of Self-Enforcing Agreeements,”also at Cato Unbound,which I am linking here. I actually reference Rodrik’s work in my new book with Bill Bonner, in chapter 3, in a rather lighthearted way in wondering how much democracy is really correlated with economic success.
“The problem with self-enforcing agreements is that they do not scale up. One of the findings from Elinor Ostrom’s extensive case studies is that self-enforcing arrangements to manage the “commons” work well only when the geographic scope of the activity is clearly delimited and membership is fixed. It is easy to understand why. Cooperation under “anarchy” is based on reciprocity, which in turn requires observability. I need to be able to observe whether you are behaving according to the rules, and if not, I have to be able to sanction you. When the size of the in-group becomes large and mobility allows opportunistic behavior to go unpunished, it becomes difficult to maintain cooperation. Imagine that the pirates numbered in the millions and they could easily jump ship to join competing groups mid-voyage; would the arrangements Leeson describes have been sustainable?
Unlike in pirate societies or pre-colonial Angola, modern economies require an elaborate and ever-evolving division of labor—among owners of firms, managers, and their employees, among producers up and down the value chain, and between producers and providers of supporting services such as finance, accounting, and legal services. The complexity, fluidity, and geographic non-specificity of these activities leave too much room for opportunistic behavior for self-enforcing arrangements to work well. They require an external backstop in the form of government-enforced rules.”
Just off the bat, it seems there are some problems with Rodrik’s argument. The first is that there is a mechanism for the complexity of economic variables to self adjust — it’s called pricing. Secondly, the need for rules does not necessarily entail a bureaucratic central government, such as we typically find today. Possible substitutes are many — local bodies that are loosely federated, non-government lawmaking bodies, canon law (for communities so disposed)…there are lots of possibilities, once we get out of our self-created rut of thinking in terms of leviathan..
Here’s my own take on Somalia and lots of related peeves of mine…from advertising to government hacks…in a piece, “Minding the Crowd,” Dissident Voice, 2006:
“Anarchists will argue, of course, that you don’t need a government to do that. Private groups are perfectly able to provide security, defense and infrastructure. We won’t argue with them. We don’t believe we know enough of the matter one way or other. But one thing we do know is that both the anarchists and the statists are confused when they talk. They say state when they mean government, and they say government when they mean the rule of law. They confuse anarchy with chaos, and the absence of the state with the absence of law.
Somalia is stateless, but it is not entirely without laws; there is anarchy, but there is not yet complete chaos. Somalia may be an example of how spontaneous order can take root even when the state collapses.
The Law of the Somalis, written by Michael van Notten, goes to the heart of the matter. Van Notten, is a Dutch lawyer who married into a Somali clan and lived in the country for the last decade or so of his life. 
Van Notten points out what the BBC does not want to notice. Somalia might lack a state, but it’s not completely without government. The country still relies on traditional Somali customary law, which, he points out, would not be able to work if a central government and western style democracy were imposed on top of it. Somalia’s free market is not operating in suspended animation, or in a vacuum. It rests — in a precarious, wobbly way, it is true — on the traditional law of the Somalis. And it does have a government — even if it is only the government of the Somali clans.
Somali customary law and clan government follow natural law closely. And whatever fragments of a genuine free market operate there do so only because of the norms of behavior springing from this indigenous system.
Van Notten makes another interesting point. He suggests that the terrible problems plaguing Somalia don’t arise from the free market or the lack of central government at all. Instead they are the result of the constant attempts to impose government, albeit unsuccessfully.
“A democratic government has every power to exert dominion over people. To fend off the possibility of being dominated, each clan tries to capture the power of that government before it can become a threat.” 
And the fear of domination is only kept alive by incessant U.N. efforts to intervene and impose a Western style government in the country. Leave the clans alone, he says. Let foreign governments just deal with them.
The irony is, a real free market is not free at all. It is, and always has been, restricted: by laws, customs, traditions, morals, expectations. In Somalia or the West, you have to choose. It is either natural law or the law of the jungle……”