Anarchy has a bad rap. When people hear the word they generally think of angry kids wearing black and burning cars. Or of people running wild in the streets, fighting and looting. But that isn’t anarchy; it is chaos. The difference is important.

Some people claim that anarchy would lead to chaos. Perhaps. That is a discussion worth having. But first people need to recognise that anarchy is not defined as chaos.

Anarchy is the radical extension of classical liberal thought. Liberals believe that people should generally be allowed to control their own lives, with limited government involvement. More radical libertarians believe that government should get out of everything, except police, courts and army. Anarchists simply take it one further and ask why the free market couldn’t supply security and arbitration services, so that the government could disappear entirely.

This is a reasonable question.

Indeed, the market already does supply security and arbitration, and some people think they already do a better job than the government. The police suffer from all the problems you would normally expect from a government monopoly – corruption, inefficiency, and lack of a consumer focus. Some cynics might suggest that their primary job is to raise revenue with traffic fines, while they are relatively less likely to actually catch violent criminals.

In response to the failure of government police, private firms such as Capital Special Police have entered the market offering full police services. Other private firms, such as Chubb, offer more limited security services. There is also a growing market for private arbitration, with many firms offering services in competition with government courts.

Despite the uneven playing field (with government police being “free” to consumers), demand for private security and private arbitration is increasing, indicating a higher quality service.

A key confusion about anarchy is that people think it means “no rules”. This is not true. An anarchist has no objection to people voluntarily coming together to follow the rules of cricket; but this doesn’t require a government. Likewise, an anarchist has no problem with people voluntarily coming together to follow the rules of a church, or a social club, or a workplace, or a local community. Most of the rules we follow in life are informal and were developed without the government.

But still, people find it hard to wrap their minds around anarchy. The immediate response is to assume that without government, private security firms (and other people with guns) will enforce bad laws, or fight each other, or will simply become gangs of thieves, leaving innocent people to live a life of fear and poverty.

There is a prevalent (though wrong) assumption that it is only the government that stands between civilisation and a chaotic orgy of murder, violence and theft. The concept of life without government is so foreign to most people that they simply can’t imagine what it means.

I think the following thought-experiment might help to put the concept of anarchy into a context that can be more easily understood, and also make clear why anarchy isn’t as scary or strange as it first appears.

To start with, consider our current system of government in Australia. The first step in the thought experiment is to decentralise all of the coercive elements of the Federal government (such as tax and restrictions on voluntary behaviour) down to the State government level.

The Federal government would then become an umbrella organisation (similar to the United Nations, or the Council of Australian Governments) that derived its role only from the voluntary agreements of the member States. We would continue to have a democratic federal parliament, and federal agencies, but the size of federal government would be limited by the voluntary contributions of the member States.

This is not far different from the original intentions of our constitution. Whether or not this would lead to better government (I think it would), the point is that decentralisation is not particularly scary or impossible concept, and does not logically lead to burning cars and smashed shops.

The next step in the thought-experiment is to decentralise all the coercive elements of the State governments (including tax and restrictions on voluntary behaviour) down to the local council level.

Once again, the State governments could continue to play an important role as coordinating bodies, but they would derive their resources and responsibilities only from the local councils. It might be (as some people prefer) that the State bodies would become less relevant and local councils may prefer to deal directly with the Federal body, or with other regional bodies, to solve inter-council issues.

This answers the question of whether we should have State governments: we will have them if they are seen as offering an important service and they will disappear if they are seen as not worth the time and money.

Few people today have much faith in local councils. Given the low levels of efficiency and effectiveness of many local councils, this is understandable. However, there is a strong argument that suggests local councils improve when they have more responsibility and control, and this is supported by examples in Germany and Switzerland.

But irrespective of whether you accept the arguments for jurisdictional competition, for the sake of this thought-experiment I only need to show this approach is viable. Decentralising the coercive powers of government down to the councils may be unorthodox, but it is possible and the concept is understandable to most people.

There is only one more step necessary to get to anarchy.

The final step is to allow people to set up their own local councils, and then allow competition between these local representative bodies.

The idea of setting up new councils is not particularly radical, and has many precedents. America has a long tradition of groups of people coming together voluntarily to form their own communities, and that tradition is also strong among the Israelis who chose to live in a kibbutz.

It is likely that many people would simply stick with ‘the devil they know’, and continue with their current local council. But others may like to create their own community with their own representative body on their own land. It is possible that places such as Noosa might break away from the Sunshine Coast council that they were recently forced to join.

Local councils would still have rules, and a visitor would be expected to follow those rules. This is no different to following the rules of a golf club when you go to their property, or following the rules of a different country when you are on their land. There would be an extremely high incentive for local councils to coordinate with each other to address inter-council issues and create reasonable levels of conformity where desirable, and there is a long history of successful coordination between neighbouring jurisdictions. At the extreme end, some people may choose to set up small communities on their property, just for their friends and family, and then not deal with the “outside world”. While eccentric, there is no danger in such a lifestyle choice. If such nomads ever did decide to venture off their property, they would still need to obey the rules of other communities when in their jurisdiction.

At the end of this thought-experiment, we have an anarchist society. There are still rules, security provision, governance procedures and many of the other trappings of government. There would still be inter-council bodies, but these would only be empowered through the voluntary contributions of councils who themselves only have voluntary members.

One consequence is that the roles of the federal governing body would likely shrink. They would only have responsibilities in areas where many local councils could see a strong case for economies of scale or large-scale coordination. This may includes issues such as some infrastructure, high courts (to appeal decisions of local council courts), defence, foreign affairs and perhaps some administrative functions that can more easily be coordinated at a higher level.

This “trickle-up” approach is in contrast to the current system where the federal government controls most of the money and power and allows some to “trickle-down” to the State and local bodies.

My goal here has not been to convince you of the virtues of anarchy. An anarchist will suggest that the jurisdictional competition will lead to better governance, less waste, and more choice. But to make that case would require a more detailed exploration of the issue. Instead, my goal is simply to explain anarchy in such a way that people can appreciate it as a functional alternative political system.

There is one more objection to anarchy that should be considered.

Even if you accept that anarchy does not necessarily lead to chaos, the concern remains that an anarchist society is not stable, and a new government may emerge. There is always the possibility that some local councils, and/or some state and federal bodies, may decide that they want to impose their decisions on other local councils without their permission. If that happened, then it would cease to be an anarchist system and would have reverted to statism.

An anarchist must admit to this possibility. But there are three offsetting considerations that are worth pointing out.

First, conflict between voluntary councils is less likely than conflict between nations, because in anarchy the warring parties have to pay their own expenses instead of using involuntary taxes. If America had only been able to invade Iraq after they raised the requisite funds voluntarily, then it is less likely they would have gone to war. In contrast, in a developed anarchy, the potential profits from voluntary coordination would be relatively high.

Professor David Friedman argues that a developed anarchy would be unlikely to have any one power strong enough to enforce their will, and all other security forces would have a strong incentive to stop the other forces from trying.

Second, while war has been historically common, there are reasons to believe that the benefits and costs of conflict are changing. Economic development has increased the direct costs of war (as people put a relatively higher premium on safety and longevity) as well as the opportunity cost of war (since the benefits of trade have increased). On the other side, the benefits of war have decreased since the most valuable part of a modern economy is not land or capital, but human knowledge, which is difficult to steal.

Third, while anarchy would not be perfectly stable, no system is perfectly stable. Through history many apparently stable systems have crumbled after a few centuries, and this includes the example of anarchist Iceland which was stable for several centuries before succumbing to invasion.

None of this is to say that anarchy is preferable to any other political system. It remains an unpopular and radical philosophy, and there are many reasons why people will remain sceptical of anarchy and prefer to retain some sort of government control. However, for those with a strong belief in political decentralisation and jurisdictional competition, anarchy is an intriguing alternative that deserves to at least be properly understood before being dismissed.