first, I have to applogise for long periods of silence which will probably get worse for a while. My second baby is 4 weeks old and the concept of day and night ceased to be meaningless to me.
That's probably a worst time to get into complex discussion. I'd love to write a serious essay on nutrition as well as on the errors of J M Keynes and a few more fundamental issues - and some day I probably will.
crowMAW: I am arguing that a legitimate role for government is to reduce transaction costs. You've given examples where government has exceeded that legitimate role. There is a legitimate disctinction. But lowering transaction costs has costs as well - costs that have to be coercively confiscated from private projects. The government cannot make an economic calculation to check whether the benefits exceed costs - or even if the benefits exceed drawbacks.
There may be plenty people who would not want that lighthouse if it was free.
The nice rural retreat estate may lose it's value when a port city pops up next ot once-treacherous waters, followed by uncouth sailors, prostitutes, longshoremen unions and finally black death imported along with exotic goods...
You said that transaction costs should not be considered externalities. I gave you a clear example of where they can be. Either I do not entirely understand you or I am out of my depth on the issue of externalities, so let's table this question.
Congratulations for realizing that there is at least one legitimate role for government. Well, I was using the terms loosely - I ment "the accreditation/sertification institution". One could call it a "government" or a "governing body", but without power of coercion it would hardly be considered a Government. The Underwriting Laboratories, Orthodox Union or Consumer Union would be surprised if anyone called them "government".
The hard question now Miko is for you to define a complete list of the legitimate roles that government should play. We'll make a minarchist of you yet. 
Protection of private property and persons from aggression and enforcement of contracts of course.
I do provisionally classify myself as a minarchist - there seem to be no consensus whether a minarchist government is possible without it growing into totalitarian state or devolving into anarcho-capitalist society.
I think you are making a pretty big leap by thinking that my arguments for a government that can legitimately act as an enabler of reduced transaction costs is also an argument for a government that has a draft! Once you give the monopoly on violence to someone and a loosely defined mandate, you may not be able to control where it ends up.
The curent woes of this country are apparently based on misreading of the "welfare" and "interstate commerce". "Reducing transaction costs" is an even fuzzier goal. A ruler could justify putting all the Earth under his rule and instituting a severe eugenics program as such.
I am arguing that the concept of a government sponsored postal service to ensure equal access helps reduce transaction costs and is therefore a legitimate function of government. I am arguing the opposite. The government provision of roads, communications and natural disaster relief to some people at the cost of other people induces people to settle where they would not settle under the free market. everybody's transaction costs are rising.
Ever watched the documentary on the history of New York City? the government destroyed neighbourhoods, built roads and subcidised mortgages for suburban houses at the expense of taxpayers. So obviously more people settled in suburbs than would otherwise - while living in the cities was the natural cost-reducing trend.
That is a pretty big assumption. Would you ever consider buying a house where you don't actually own the land under it...you own the structure, but not the land. As I've said - I can envision a scenario but it was too complex to describe here. I can imagine a combination of contract terms and price that would make sense or a buyer.
But to your example...are you suggesting that in a pure "free market" that a land purchaser would have to negotiate a perpetual access contract with every road owner to which that property's driveway connects it to any destination within the road network? No, only to his local road, with understanding that it has such a contract with a higher-level road, etc. Kind of like internet.
Each transition would require a toll to be paid to the owner. Suddenly what was a 5-6 hour trip is now increased dependent on the number of toll booths the individual owners decide to build. What a coincidence, here is a yesterday's article that can spare me some typing
Abolishing Government Improves the Roads If I am the only person that can read, then the utility for anything requiring reading is nearly nill. Err... Many societies had high degrees of literacy without goverment programs. As well the telephone and other comminications arose on a free market and then got hijacket by governments.
Imagine, you are living your life prety happy and content, then someone comes up with a marketable invention - that improves lifes and makes stuff cheaper and better without coercion. All of a sudden a thug shows up on your door saying that you must fork over some money becasue the life has improved. Kind of silly, isn't it? If the invention was so good for you, you would have no problem borrowing money to aquire it. It would be a wise move for you and the investor and woudl not require coersion.
He doesn't just use the term...he describes the concept specifically as it relates to air pollution. Air pollution specifically, and pollution or enviornmental impacts to development in general have always been one of the most pernicious problems for anarchists to resolve. I guess on obviously negative emissions where individual action was unfeasable, some common definition of acceptable pollution levels could have been adopted by society and enforced at the source. I do not see how it would conflict with a minarchist state's protection of property mandate.
What in an anarchist society would resolve this situation? They could prove the pollution comes from your ground water, but I see your point.
Many situations can arise that do not require actual harm but just the risk of such - fire hazard, nuclear accident, etc., so some kind of inspection and compliance with some kind of standard would be worked out.
I imagine anarchists would want no government but knowing that a major disaster would change people's minds enough to bring in a big government, everybody would be interested in a reasonable compromise.
crowMAW: In the US, we as a people have banded together to manage common property based on our own principles (the US Constitution). The Constitition was opposed by many of the signers of the Declaration of Independence, did not represent all the people and those whom it represented are all dead. Some founding fathers suggested re-adopting a constitution at least once per generation, I do not remember which.
consider this Miko...the government is not extorting anything from you. You freely choose to join the society called the USA. By freely joining, you have made a value judgement that the benefits of living in the USA outweigh the costs of conforming to the management decisions of the group. I am aware of that - and I believe I made a good choice at the time. But it hardly matters to a theoretical discussion. People are known to prefer one master to another, but that does not make them free.
Anyway, if the USA is the country with most liberty, for all its flaws, that's all the more reasons to preserve it that way or even reverse the downfall.
Montezuma: Do you think the invisible hand is working in markets controlled by monopolies or cartels? Yes. Natural monopolies and cartels are unstable and short-lived. The "monopolies and cartels" that we hear about that were all created and maintained through the power of government - including local utilities.
Same as the business cycle that was blamed on the market but is really the product of state-sanctioned fractional reserve system.
