As someone who generally considers myself libertarian, yet admittedly doesn't fully understand all the philosophies and intricacies of it yet, I enjoyed this read. I have a question about your marijuana comment: can you point me to a good read about a consistent libertarian drug policy? I'm certainly for legalizing marijuana simply because alcohol and tobacco are far more dangerous, but for more dangerous drugs it's a bit harder to argue for legalizations. However, while I haven't completely formed my opinion on drug policy, I tend to think that every drug SHOULD be legalized, and that doing so wouldn't harm society much. I can't really back up my opinion yet, other than by listing these two points: 1) We are allowed to do things like climb mountains and drive cars, given a certain amount of training and/or a test, not to mention eat whatever we want and refuse to exercise, even though all these are objectively shown to be rather dangerous. 2) I personally would not start trying all the dangerous drugs were they suddenly legalized, so I suspect reasonably wise educated people also would not, and there would not be some huge decay of society just by legalizing drugs. In fact, I have no research to back me up, but I tend to think legalization (which really is just decriminalization since we all know drugs are quite available and common) would introduce competition, drive the prices of drugs down, probably make drugs more safe (i.e. not mixed with other, worse substances), and remove the association of drugs with slums/high-crime areas. I welcome more educated libertarians to comment on my ideas and educate me more fully.
There is a real-world example against prohibition of narcotics, and that is prohibition of alcohol. It did not work. Billions are spent on the War on Drugs, and yet it's clear that it's easier than ever to get drugs on the street. Posession of marijuana is the number one most committed crime.
The point you made at the end is essentially the argument for why legalization of drugs will solve a lot of problems. Competition will bring in ligitimate sellers (as in the alcohol industry) and get rid of all of the crime that comes from the local dealers who "own" street corners.