That's quite wrong. pg always said that YC should operate like a startup and his primary definition of startups is growth. The original spirit behind YC was let's-hack-the-economy with an experiment in the mass production of startups. That's encoded in the name itself.
In other words, much larger batch sizes were guaranteed as YC grew. How pg and the original founding team might have gone about it, compared to others, is a different question—but certainly not by "keeping the entire system small". Whoever wrote that is speaking from ignorance, which fits with the personal smear against Sam.
Who says it's not working? That would be an argument that batch sizes haven't grown large enough—something no one here seems to be saying. Actually that would be more interesting than the things the OP and some of the commenters are saying, most of which have been going around for 10 years or more.
In other words, much larger batch sizes were guaranteed as YC grew. How pg and the original founding team might have gone about it, compared to others, is a different question—but certainly not by "keeping the entire system small". Whoever wrote that is speaking from ignorance, which fits with the personal smear against Sam.