Bigger picture this means to me decentralization. Elimination of the federal, state, and local governments and replacing them with with even more decentralized control... such as the many churches within the city or any individual/organization that would like to fill that (security) role... and then Priest or Pastors or individuals from these organizations could, at their own behest, form cooperatives amongst themselves. This is without regard to whether they must use coercion or not to fund their operations.
Decentralization has benefits.
The problem is that the many little states fight wars, resulting in mergers, so that over time the states in the system increase in size and decrease in number. Consider medieval Europe, consisting of hundreds of little polities, and how they were transformed into large nation-states through war. Thus interstate anarchy undermines itself.
One apparent solution is federalism, where instead of the states being completely independent, they're subject to a central government powerful enough to prevent them from warring with and conquering one another. The problem is that any central government strong enough to play referee between the states is strong enough to dominate them. Federations tend over time to either revert to interstate anarchy (if the central government is too weak) or evolve into centralized states (if the central government is too strong). Thus federalism too undermines itself.
Ultimately, decentralization is not a solution to the problem of how to restrain government.
Counter-intuitively, the solution is to concentrate power as much as possible.
If you're not familiar with the libertarian case for monarchy, see
here.
Once the ruler is motivated to pursue liberal policies, then decentralization can be useful as an administrative technique, imposed from the center.
The ideal form of government ends up looking like feudalism, or a type of corporate franchising; see
here (towards the bottom of the post).
