Sometimes I don't know whether to call myself a libertarian or an anarchist. Both have their advantages and disadvantages, mostly owing to public perception. Call yourself a libertarian, and you risk being disregarded as a Republican who smokes pot, a redneck or swamp Yankee gun nut (that one I can live with), or worst of all, Bill Maher. Anarchists probably have it worse. Most people think that anarchists wear Che Guevara T-shirts and stand in picket lines in front of Starbucks. Unfortunately, most of those Communists do call themselves anarchists.
As a result of these stereotypes, sometimes I call myself a libertarian, and sometimes I am an anarchist, depending on who I am talking to. Furthermore, among people who have more than an evening-news understanding of political theory, a subtlety has arisen with regard to the two terms that I think is unfortunate. This is that a libertarian must support some form of minimal government to protect the people's rights.
In general I prefer using "libertarian" because it is a positive term that shows what I support. I support liberty. In fact, I consider myself an anarchist only as an extension of being a libertarian. What does an anarchist believe in? No government, apparently. But why? For me, it is because no form of government can be upheld to libertarian principles. Show me the government that does not infringe upon anyone's rights, and I will no longer call myself an anarchist.
Most people who consider themselves libertarians do not extend the non-aggression principle to its ultimate logical end, anarchy. Most libertarians, in fact, consider themselves Constitutionalists and can be spotted from time to time waving around those CATO Institute pocket-sized editions. These libertarians have one last remnant of statism to work out, one last demon of collectivism that must be exorcised before they can take the final plunge to being anarchists. This last belief is that a government is needed to provide and enforce law. The minarchist can imagine anything he could possibly want or need being provided by others under a free market economy--except a legal system (and for more stubborn libertarians, large-scale defense and roads). The subsequent question arises, "But who would make law?" Often, the minarchist has the notion in his head that there must be some "official" final authority to resolve all disputes. The logic is that it is okay if anyone who wants to can sell watches, but anarchy would also mean that anyone who wants could go around enforcing their own laws . . . and nobody could do anything about it (since it's anarchy)!
I typically respond to the "But who would make X?" question by pointing out that it is only because of government interference in the first place that certain marketable goods and services are not produced by voluntary means. Does anyone really think that if the Post Office were not in existence and there were no government restrictions, that no one would deliver mail? The problem, aside from lack of imagination, is that people are so accustomed to the government providing certain functions that they end up believing that only the government is capable of these functions. In some cases, this view is correct, such as in the case of total warfare and genocide. In cases of any non-coercive good or service that people want though, it is incorrect. It is therefore tempting to reply to the minarchist objection by describing how private firms could provide court systems and law enforcement. Many people have brilliantly described the possible workings of an anarchist legal system, and I will not attempt to top them here. More importantly though, these responses are inadequate because they employ economic reasoning to answer what is really an ethical question. The basis of asking who would decide what laws to enforce is not to make sure that private courts and enforcement agencies would exist but rather to make sure that they operate ethically. This concern was best put to me once by a minarchist, who said, "When you put justice on the market, you also put injustice on the market."
Minarchists reject explanations of potential anarchist legal systems because there is always some hypothetical situation where the correct legal outcome is not clear or does not happen. What happens if some poor person no one cares about is murdered, and no one will pursue the criminal? What if two private courts cannot agree to a mutual decision on a case? Who will stop a private court if it makes the wrong decision?
The minarchist charges that no matter what potential legal system is outlined beforehand, there will always be insurmountable problems that will not result in a perfectly libertarian society.
And the minarchist is absolutely correct.
No one can plan out a perfect society. There will always be anti-social individuals who infringe upon the rights of others. There will always be a necessity for human beings to judge and enforce proper laws. The complaint that the anarchist society cannot result in a system of perfectly libertarian outcomes in every case is nothing less than a complaint that humans don't have perfect knowledge of law. But one might as well complain that humans don't know every law of physics, or that humans cannot foretell the future.
I am not an anarchist because I think that a private legal system would be perfect. I know that it would not. But I would not support the actions of a rogue court any more than I support the policies of the current government or the actions of a burglar. I do not support anarchy as a personal preference; I support anarchy because every form of government must by definition violate individual liberty. I cannot tell you that no one would ever be wronged in an anarchist society or that no firms would ever engage in unethical behavior, but I can point to one institution now that is illegitimate and ought to be abolished. That is the state.
The answer to the question "Who would make law?" is really that everyone would. Every honest individual uses his reason to decide when defensive force is warranted or when one person has infringed upon someone else's rights. This is not to say that everybody will be correct in their conclusions, only that it is not the place of anyone to lay out beforehand who must decide law and who cannot. The minarchists err in asserting that only a select group of people may have this duty, and the anarchists err when they attempt to illustrate which individuals would end up with this duty in a libertarian society. The libertarian rejects the unjust use of force wherever it occurs, and it is on these grounds alone that the case against any form of government can be made. And it is on these grounds as well that the libertarian would reject criminal acts in an anarchist society, just like he rejects them now.