[CdM] On the last point, I don't think I am misreading: the hypothetical responses of Smith et al are those of people unable to imagine the alternatives. (As a digression, I would not be surprised -- except by my living so long -- to see in a century's time the relationship of "employment" being regarded as as degrading as "keeping a servant" is regarded by many people today.)
Having just read
the Reason article that Belle Waring had such fun with, her summary of Friedman is way off. There is no wishful thinking in Friedman. Speculation, certainly. Waring is speculating as well, speculating about a world in which the governmental restraints on people that we see around us are absent, but ignoring all of the proposals for what might replace them. Let's wish for no-one to have a pony!
The fundamental problem of having a government to secure public goods is this: how do you restrict the government to doing only that? Looking around at the world, it seems clear to me that nobody has found a solution to that problem. The thing that governments are most effective at is securing and extending their own power.
[rab] The idea is that there are other institutions instead, ones that do not take the form of a small group of people (elected or otherwise) telling everyone else what to do. As you point out, the original state of institutionless nature was in fact followed by governments.