The techniques for funding tyranny are quite well-developed, one could almost say perfected. At present, the US government can withdraw any desired proportion of privately produced wealth simply by typing higher numbers into the Federal Reserve computers. This massive flow of wealth supplies the tyranny needs of two-thirds of the world's governments. Numerous backup systems are also available, in the form of income, excise, property, sales, tariff, sin, and death taxes. If insufficient sin and death are available, more can be produced using Drug Prohibition and/or foreign wars. Many foreign governments have all these methods as well as the all-powerful VAT, the tax on everything that adds value to life. Until anonymous, private e-money is in widespread use, funding for government will always outpace funding for productive pursuits of all kinds.
What are the funding alternatives for freedom? Many early libertarian thinkers foundered on this point. Ayn Rand thought that limited government could be funded by a government-run lottery . . . but this is only logically possible if competing private gambling is illegal. I don't think that a government which can outlaw peaceful, consensual betting (and which therefore must exterminate all remaining Indian tribes) is 'limited' enough to satisfy any modern capitalist advocate. Other suggestions for funding limited government have included fees for guaranteeing contracts. This is superficially attractive, but there are still conceptual problems. How can we assure that the money collected will go to honest contract enforcement instead of corruption, i.e. how will government agents of the future be made more honest than those of the past?
David Friedman  has suggested a system of pure anarcho-capitalism. Rather than electing a 'government' which is then legally above the rest of society, he proposes that no one should be above the laws . . . and that the laws should be the ones for which people are willing to pay. Friedman has presented historical examples of similar systems (e.g. medieval Iceland ). He makes a good case that once established, anarcho-capitalist institutions would be stable.
Those who wish to impose tyranny on a free system face many costs; and there is no guarantee that those who pay the price to create big government will receive the subsidies. There is a 'free rider' problem among would-be dictators; those who pay for the establishment of socialism will see the machinery of coercion stolen from them by nouveau oligarchs who didn't waste their energies overcoming the resistance to slavery. We see this story repeated often in the 1800s US; many aspiring aristocrats labored long to establish government agencies, only to see them captured by their competitors.
We can safely agree with Friedman that freedom can be stable once established. The abolition of public education alone would make many of the simpler forms of nanny-state propaganda ineffective. People capable of simple math could not be induced to believe that government can give out in benefits more than it takes in taxes. However, Friedman also tells us that tyranny is stable once established. Those who would gradually establish a freer system must pay all the price of convincing the public, paying for political campaigns, etc. Their socialist opponents will opportunistically profit equally from any deregulation or lower taxes which result, while simultaneously benefiting from subsidies that their own political efforts produce. And of course, once the socialists obtain a Central Bank with unlimited counterfeiting power, they will simply take all the wealth they need from their opponents. Like Hercules fighting Antaeus, libertarians cannot defeat socialism while it is drawing its power from their income.
I can attest to the difficulties of the gradualist approach. Having served in a variety of tax-rollback campaigns, I have observed that even when we won, we lost. Politics is the measure of relative power, not absolute benefit. We defeated a sales tax in Dallas ; the victory left the proponents of the tax just as much better off as everyone else. They used their money to fund yet another pro-spending campaign, this time telling the voters that it wasn't a tax increase . . . just a bond issue (and where is the money coming from to pay off these bonds?) And so they won, built various 'public works' projects such as the American Airlines arena, and lived happily ever after on the graft. Gradualism cannot restrain the growth of government; victories must last more than a few months to be cost-effective.
One attempt to overcome the inherent weakness of gradualism is Jason Soren's Free State Project . His scheme has the beauty of requiring no large outlays until a reasonable chance of success has been achieved. He has proposed that 20,000 libertarian-oriented people agree to pack up their covered SUVs and move to New Hampshire . The Free State activists will then privatize local and state government functions, repeal 200 years worth of encrusted state regulations, re-establish friendly relations with Indian tribes and Canada , and prosper.
So far 6,533 people have signed up; 359 already live or have relocated to New Hampshire . Soren's idea has much to recommend it, especially compared to more expensive and less effective avenues such as third-party politics. A Free State could serve as a laboratory for privatization and abolition of victimless crime laws. But the Free State would still be under the sway of the Federal Reserve and the all-seeing Eye of Fatherland Security.
A more sweeping possibility for change is available in countries that have proportional representation, and thus a niche where Libertarian parties can get a foothold. Movimiento Libertario  in Costa Rica won 10% of CR legislative seats in 2002. Costa Rica has a long tradition of welcoming foreigners who can demonstrate self-sufficiency, and already has a well-tolerated minority of US expatriates. If the contributions expended by US libertarians over the last 20 years on futile US Presidential races had been concentrated in Costa Rica , the world might already have a haven for liberty. And a safe place to put one's money; even e-money systems need to have their gold vaults somewhere. Perhaps a contribution to el ML should be considered by US libertarians trying to find an effective way to build freedom.
Even more radical would be a project to purchase some Third World wasteland and people it with entrepreneurial refugees from anti-capitalist states (like the United States of Homeland). A multimillionaire Texan from Lewisville formed Beal Aerospace  with the idea of operating a private space-launch center from an autonomous zone leased from Guyana . The advantage to the Guyanans (other than the obvious, normal motivations for Third World politicians) was that the leaseholding was in the lands disputed by Venezuela . Beal would have served as a 'March Baron' for the Guyanan oligarchs. Unfortunately for Guyana , Beal couldn't get assurance of US government clearance to 'export' his own rocket technology to himself. Beal also announced that the specter of increased subsidies for NASA launches undercutting his prices discouraged him. The moral of the Beal Aerospace story is that no freeport or money-haven project that depends on the cooperation of US bureaucracies is a good investment.
Beal's buffer-zone idea is sound in principle, however, and may be adopted by new ventures. Several tiny European nations have survived for centuries simply by provoking arguments over which major power would get to loot them. Andorra has been landlocked between Spain and France for centuries, growing rich from large-scale smuggling. Its independence has survived into 2003 because neither large government would allow the other to conquer Andorra .
How to fund freedom? The optimum 21st-Century solution remains for some bold entrepreneur to find. George Washington used land speculation to justify his investment in the American Revolution; the Swiss long used secret banking to bring in money from those less-free subjects around them. Both of these methods are still viable. New revenues may flow from biotech havens, equatorial space launch centers, or just tourist areas free of victimless-crime laws. In a hundred years the victory of freedom will appear to have been inevitable. Only those of us who live now can know just how hard it was to find the money.