You are right, of course, to pull us out of a 21st century understanding of salt, so let me add a few more nuances to the salt reference of which Jesus’ Jewish followers would certainly be aware.
In Exodus (30:35-38) we learn that salt is an essential ingredient in the incense God ordains be placed in the Tent of Meeting, and in Leviticus (2:13) we are told that we are to include salt with our grain offerings to God. So salt reminds us of both the capacity to meet God and the gratitude that is our natural response to that meeting. But more than either of these references, when Bible-steeped Jews hear about salt they immediately think of Lot’s wife who was turned into a pillar of salt (Genesis 19:26).
The rabbinic commentary on Lot’s wife extant in Jesus’ time challenges the idea that being turned into a pillar of salt was a punishment. Lot’s wife “sinned” because her love for her daughters overwhelmed her fear of God. Would God punish a mother because of motherly love? The ancient rabbis say, "no." They tell us that by being turned into a pillar of salt Lot's wife gave life to animals from miles around who came to lick her and live, for without the salt she provided they would die. By day’s end she was totally consumed, and by dawn’s light she was restored. Is this not a wonderful parallel to the sacrifice of Jesus and Communion?
I would suggest that being the “salt of the earth” means giving all we are for the well-being of others. This is so in sync with Jesus saying, “For whoever would save his life will lose it, and whoever loses his life for my sake will find it,” (Matthew 16:25). This is also analogous to the Mahayana Buddhist ideal of the Bodhisattva, the enlightened sage who refuses to leave this world for Nirvana (the Buddhist “heaven”) until the last and the least have preceded her there.
Regarding the rest of this text, I assume that Jesus’ followers, the vast majority of whom were Jews, would hear his reference to hill and light, and immediately think of the prophet Isaiah who said God’s House will shall be established on a mountain top “above all hills, and all nations shall come unto it,” (Isaiah 2:2) and that Israel shall be “a light unto the nations” (Isaiah 42:6) opening the blind eye, and freeing those imprisoned in the dungeon and in darkness (Isaiah 42:7). This opening of the blind eye and freeing those entrapped in darkness may be the “good works” to which Jesus points in clear contradiction to those who claim works has no place in Christianity.
While there are many substantial differences between Judaism and Christianity, there seem to be few between Judaism and Jesus.
This is all I have to offer regarding this text, but I cannot read your closing comment without hearing a voice of anguish. I may be projecting my own view of things, but when you say “Jesus is not commissioning an army, creating a school of theology, tying his hopes to politics, or fashioning an institution” I cannot help but let out my own sigh of great sadness, for isn’t this exactly what has happened to his teaching?
My only hope is in those individual hearts and minds, those Bodhisattvas of every faith and none, who, devoted to justice and compassion, are set loose upon the world to open blind eyes, soften hardened hearts, and free those imprisoned in fear and darkness, and, by so doing, become the night beacons that show us the way to a new world.