I would like to respond to this one. First, I applaud your use of actual primary sources, which most people don't do. In this case, there were cod fisheries asking the federal government for what we would now call subsidies under military readiness because the fishermen became experienced sailors during wartime. This letter was Madison (at the time, a Virginia House Rep) arguing that to be too much federal overreach, so in that sense, you are correct in that he was arguing for a small federal government.
However, they're not asking for the federal government to own the fisheries, just to subsidize them. This means that he is not arguing against the idea of (what we would now call) socialism of a national or even individual-industry scale, but against this particular issue. Madison never refutes the idea of Congress paying for the military, for example.
Also, he talks about Congress, not the government. This was a federal bill, so he's speaking specifically of the brand new federal government, and makes no statement whether the States could institute whatever they liked. In fact, he mentions "that this government was unlike the state governments, which had an indefinite variety of object within their power ..." That tells me that he is arguing more about federal intervention vs. state intervention, and less about government vs. private ownership.
Finally, this was written in 1792, and a lot has changed since then. We now have many, many industries now that could only be run by government ownership—socialism, on a one-industry scale—that weren't around in the 18th century, such as the police and fire departments. I also don't need to point out that our government hands out *piles* of subsidies these days, so if this letter was a blanket argument against those, it's one we have been ignoring for more than a century now.
The whole letter:
Founders Online: Bounty Payments for Cod Fisheries, [6 February] 1792