Forty years ago, squatters in Copenhagen set up the “free zone” of Christiania inside an old military base. The main drag is now a drug market called Pusher Street. But against all odds, and with a little help from the establishment, Christiania is doing just fine.

Last June the British lifestyle magazine Monocle called Copenhagen “the World’s Most Livable City.” It cited Copenhagen’s “world class design, gastronomy, culture, innovative city planning, and green sustainable lifestyle.” There is not much rotten in Denmark these days, and it’s hard not to love Copenhagen. Bicycles and pedestrians rule the streets, and the human beings mostly look as if they stepped out of a fashion magazine.

But there is another city within Copenhagen—the infamous “free town” of Christiania—and I couldn’t help but wonder how it might rate by Monocle’s high-minded, modernist criteria. Christiania is the 84-acre anarchic enclave founded in 1971 when a brigade of young squatters and artists took over an abandoned military base on the edge of town and proclaimed it a “free zone” beyond the reach of Danish law. They christened it Christiania (it’s in the borough called Christianshaven). Christiania is still in full swing with about 900 residents, some of them third generation, and it’s perhaps the largest and longest-lasting commune in history. To enter it you pass under a sign that reads, “You Are Now Leaving the European Union.” The people of Christiania fly their own flag and use their own currency.

I first went to Copenhagen in 1972. The youth movement was in full bloom. Even the soldiers had long hair. When I heard about Christiania, a neighborhood that had just been “liberated” and was now a commune where you could squat for free and do almost anything you liked, I headed right over.

There was a bit of East Village to it all, but the attitude was more determined. Thousands of young Danes—artists, feminists, hippies, anarchists—were turning their back on straight society and had actually conquered a part of town, were holding it, and were living there for free beyond the law. This was heady stuff back then. Christiania even had a mission statement: “to be a self-governing society . . . self-sustaining . . . and aspiring to avert psychological and physical destitution.” The possession of private property was thought to be immoral.

Back then, a walk through Christiania (no cars, of course) was mesmerizing. Everyone was young. There was a lot of hair. I’d seen American hippies, but the ones here were a bit more stylish—chic even—especially the girls, barefoot in their face paint and peasant dresses. People set up stands to sell macrobiotic food and Third World jewelry and beads, but the main attraction was the hashish. If people were not selling it or smoking it, they were bent over busily crumbling it into small pieces, mixing it with tobacco, and rolling joints. Its sweet smell was everywhere.

The free town seemed more a festival to me than a society. I could not imagine it lasting. People would flock there for a while, I knew, but criminal elements, motorcycle gangs, and party people, the usual potpourri of miscreants, would surely soon outnumber the idealists. The locusts would come, as they did in Haight-Ashbury. Inevitably, the government would forcibly close it down. Obviously I didn’t know the Danes.

I went back to Copenhagen for a visit this summer. I was curious about Christiania. It was 42 years old now. What had it become? The long, beautiful summer days made it the perfect time to find out.

Christiania has grown up to be a cool, verdant little village in a corner of Copenhagen. I had underestimated the work ethic and the diligence of the Danes. They have built an entire settlement of spare, humble, Hobbit-like homes that surrounds a lake and runs along gravel paths and cobblestone roads that wind through woods to the seaside. Older buildings have been restored and are often covered in murals. There are bars, cafés, grocery shops, a huge building-supply store, a museum, art galleries, a concert hall, a skateboard park, a recycling center, even a recording studio (inside a shipping container). I noticed electric hand dryers in a café bathroom. Buildings had satellite dishes. Children rode around on multicolored bikes and groups of young tourists wandered the streets in short pants, sandals, and black hoodies.

Christiania is now the second most popular tourist site in Copenhagen, right after nearby Tivoli Gardens, with up to a million visitors a year. Even elementary-school groups come see it. The main drag is “Pusher Street,” the biggest hash market on the planet. Some 40 shops there run 24/7, selling 30 to 40 different brands of hashish. No doctor’s prescription needed. Cannabis is officially illegal in Denmark but has been tolerated and sold openly in Christiania all along. Police estimate that sales amount to around $150 million a year. Pusher Street overwhelms whatever else you might see in Christiania. Imagine a quaint small town with a strip mall of 40 liquor stores at its center. Cannabis runs deep in the Christiania DNA, but it has been at a price. Gone are the hippie dealers with flowers in their hair. Now it’s skinheads with pit bulls. Folks like the Hells Angels (always a hippie buzz kill) control the business now. This has all led to crackdowns, violence, calls for eviction, and a generalized sense of intimidation in the neighborhood.

All this has not been easy on the Christianites. There have been decades of battles with politicians. At one point Christiania was officially deemed a “social experiment” and left alone. But the basic complaint that this was occupied government land, and increasingly valuable land, did not go away. And the hash business remained a huge concern in the eyes of some. Still, the residents have gone 42 years without eviction. This says a lot about Denmark’s respect for community and individual freedom, and its tolerance for the quirky.

In 2012, the government finally resolved the four-decade-long squatter issue with an unlikely solution. They offered to sell most of Christiania to the residents—people utterly opposed to the idea of private property. They offered it way below market price ($13 million for 85 acres in the World’s Most Livable City), made guaranteed loans available, and said that life in Christiania could remain largely intact. Quite the quandary and tough to swallow, but the residents took the deal, adding some semantic twists. Individuals would not actually control the land; the “collective” would. A foundation was set up and a board created. “Social shares” were sold to buy the land. Loans financed the rest.

I met with Ole Lykke, a youthful 67-year-old and self-proclaimed anarchist, who came to Christiania in 1979 and has raised two children there. I wanted to get his sense of the future. He is the archivist and a historian of the community. Thin and handsome, with wispy, shoulder-length blond hair, he bicycled over to see me at the “archival offices” one sunny afternoon. While not a fan of the government deal, he is a realist with mixed views about what the future holds.

He explains, “We now pay double for half the freedom, considering the interest cost and increased rent. We have moved into a capitalist structure. Money talks now. It’s possible for the state to keep turning the wheel on the rent and the banks to keep making the interest higher. It will be harder and harder for older people, disabled people, to keep a home here.” He adds that “[i]f we do not keep up our payments, we have three months’ notice and the state can throw everybody out.” He lives on a pension and estimates that 40 percent of the people of Christiania receive some form of state funding. “I never dreamed I would have to save for old age because I get a pension. I paid a quarter to live here, now I pay a half.”

His optimism hinges on the hope that Denmark will legalize cannabis, an idea the Copenhagen City Council overwhelmingly approved but that was turned down by the justice ministry. “Legalize it, and you take away the last claim that Christiania is illegal. We would suddenly become very much legal. It could be taxed and be a legitimate business.” Cannabis legalization is much in the air these days, including in the U.S. It is not hard to imagine. Christiania could become the Wal-Mart of cannabis with its head start.

There is a nice Danish contradiction to all this. For decades, the tolerant, prosperous, and bourgeois Danish welfare state has allowed Christiania the luxury of its alternative ideals. The anarchists criticize society’s basic values, but they get state pensions and sweetheart real-estate deals. It’s probably not much different from small hypocrisies we’ve seen before. Remember, medieval societies tolerated and supported the monasteries, which lived according to different values from those of secular rulers.

Despite all of its problems, Christiania’s survival is a good bet. The Danes are proud of it now. After all, these are people who built their own homes, who stood up to the government and criminal elements for decades, who took in the poor and disadvantaged, who were eco-friendly and racially diverse before anyone else, and who sent the world a strong image about the creativity and tolerance of Denmark. As Jonas Hartz, a Danish entrepreneur, told me, “It’s hard to imagine Copenhagen without Christiania. No Danish government could close it down. Thousands of people would immediately march in the streets for them.” It has been quite the Nordic saga. In Ole’s words, “We done pretty good.”