He wasn't talking about "liberty of the state". He was talking about individual liberty, as protected and empowered by the state.
The debate is on (potentially) trading short-term security for long-term security and the individual liberty that security protects.
And so, in less bombastic terms, it seems Franklin's meaning is that trading a small measure of short-term safety at the cost of long-term security (from threats of any source-- external, domestic, or from the state itself) and liberty is a recipe for disaster. Franklin says here that being willing to trade short-term safety at the cost of longer-term security (and therefore liberty) is fretful and unwise and means you will ultimately forfeit actual liberty.
One can question whether or not such a trade-off truly exists with respect to the current encryption debate. But it seems fallacious to draw a dichotomy between this quote's original meaning and it's meaning as used in the debate today.