At Powerline, Steven Hayward, quotes Hayek:
All modern governments have made provision for the indigent, unfortunate, and disabled and have concerned themselves with questions of health and the dissemination of knowledge.

This is probably true, and to that extent all modern governments are making the same mistake in failing to properly protect individual rights. A reasonable government would not make “provision for the indigent, unfortunate, and disabled” nor would it impose controls over “question of health and the dissemination of knowledge.”
To think about why this is the case, consider the connection between these two statements:
1. It is okay to help people.
2. It is not okay to rob people.
The point I want to make is that Hayek would have been right to have come to the conclusion that “There is a big reason why the government should not play any role, nor ever take the initiative, in such areas as social insurance and education, nor temporarily subsidize certain experimental developments. Our problem here is not so much the aims, as such, as that the methods of government action are impossible to rationally apply to them.”
The link Hayek quote at the top continued:
There is no reason why the volume of these pure service activities should not increase with the general growth of wealth.
But there IS a reason why no government should ever provide any such “pure service activities” at any time or place, and regardless of the amount of wealth involved. The reason is that a proper government must by rights treat all people equally before the law.
There cannot rightfully be different laws for black people as compared to white people, rich people as compared to poor people, or friends of Obama compared to non-friends, etc. And to protect our rights, the government must act according to laws (instead of to the whims of politicians and/or voters).
There are common needs that can be satisfied only by collective action and which can be thus provided for without restricting individual liberty.
Any “collective action,” that is, any instance of people working together in groups, in which the participation is not voluntary on everyone’s part is necessarily “restricting individual liberty” (i.e., positioning some as masters and some as slaves) — and thus should not be legal.
For instance, it would be quite legitimate for 10 people to get together to share their money to help feed some hungry friends (or strangers). But it should be illegal for those ten to gang up on some other people to coercively take their money to use to feed those friends (or strangers).
It can hardly be denied that, as we grow richer, that minimum of sustenance which the community has always provided for those not able to look after themselves, and which can be provided outside the market, will gradually rise,…
Well, up to there he has a point. But the quote mistakenly goes on:
… or that government may, usefully and without doing any harm, assist or even lead in such endeavors.
History clearly shows that, to the contrary, the welfare state (or socialism of any variety) always does harm instead of providing useful assistance or leadership. Where has there ever been any exception? And, given the theory, how could there ever be any? Turning charity into looting is simply a bad idea.