Sometimes, like in the case of Spinoza, research was done in someone's spare time while they worked a non-time consuming job (lens grinding). In other cases lecturers, such as Adam Smith, published very little and instead focussed on teaching.
Quite right. Research usually are the privileges of noble men who don't necessarily need to work for life. But historical reference does not necessarily mean the best. It may be more desirable to have a mechanism so more talents can afford to do research.
The state will have to play the role in funding individual research, since private institutions may want to keep knowledge to themselves as a competitive advantage, or otherwise would be unwilling to fund research e.g. in the humanities.