Taking a page from *Old and in the Way*, I give you the OED's defintions 4a, 4b, and 5:
4. a.
Free from narrow prejudice; open-minded, candid. 1781 GIBBON Decl. & F. xxx. III. 142 A Grecian philosopher, who visited Constantinople soon after the death of Theodosius, published his liberal opinions concerning the duties of kings. 1803 Med. Jrnl. IX. 444 A liberal investigation of the curative power of topical cold to arthritic inflammation. 1817 J. EVANS Excurs. Windsor etc. 20 The late Dr. Watson..published a liberal reply to the Historian in his Apology for Christianity. 1818 JAS. MILL Brit. India II. V. viii. 684 Liberal enquiries into the literature and institutions of the Hindus. 1849 MACAULAY Hist. Eng. iv. I. 467 The resentment which Innocent felt towards France, disposed him to take a mild and liberal view of the affairs of England.
b.
esp. Free from bigotry or unreasonable prejudice in favour of traditional opinions or established institutions; open to the reception of new ideas or proposals of reform. Hence often applied as a party designation to those members of a church or religious sect who hold opinions ‘broader’ or more ‘advanced’ than those in accordance with its commonly accepted standard of orthodoxy, e.g. in Liberal Catholic. Liberal Christian: in the U.S. chiefly applied to the Unitarians and Universalists; in England somewhat more vaguely to those who reject or consider unessential any considerable part of the traditional system of belief; so liberal Christianity, liberal theology. Also in application to Judaism.
1823 (title) The liberal Christian. 1828 (title) Which society shall you join, liberal or orthodox? 1846 O. W. HOLMES A Rhymed Lesson 308 Thine eyes behold A cheerful Christian from the liberal fold. 1862 Dublin Rev. Nov. 48 Our friends the ‘liberal’ Catholics may be interested in a note to F. Faber's treatise. 1876 O. B. FROTHINGHAM Transcendentalism New Eng. vi. 128 It may be inferred that Transcendentalism in New England was a movement within the limits of ‘liberal’ Christianity or Unitarianism as it was called. 1886 W. P. ROBERTS Liberalism in Religion 56, I maintain that Liberal Protestantism, Liberal Christianity, is not anti-dogmatic, is not anti-theological. Ibid. 59 Now I am positively for dogma, and so I am sure is every Liberal Christian. 1886 W. BARRY in Fortn. Rev. Feb. 185 It would still appear to me..that the Liberal Protestantism of the day is a makeshift. 1900 Jewish Q. Rev. July 618 (heading) Liberal Judaism in England. Ibid., These liberal Jews have no organization. 1920 R. MACAULAY Potterism VI. v. 253 Modernist liberal-catholic vicars asked him to preach. 1957 Oxf. Dict. Chr. Ch. 807/1 The ‘Liberal Catholics’ who formed a distinguished group in the RC Church in the 19th cent. were for the most part theologically orthodox, but they favoured political democracy and ecclesiastical reform... ‘Liberal Protestantism’..developed into an anti-dogmatic and humanitarian reconstruction of the Christian faith. 1965 Sunday Times 5 Feb. 5/3 A plan for a national conference of non-orthodox synagogues, Reform (progressive) and Liberal. 1968 B. M. G. REARDON (title) Liberal Protestantism. 1974 Times Lit. Suppl. 19 Apr. 424/4 Judaism is divided into Orthodox, Conservative and Reform varieties following the American terminology, and not into the British Orthodox, Reform and Liberal camps.
5. Of political opinions:
Favourable to constitutional changes and legal or administrative reforms tending in the direction of freedom or democracy. Hence used as the designation of the party holding such opinions, in England or other states;
opposed to Conservative. Liberal-Labour, of or pertaining to (persons associated with or sympathetic to) both the Liberal and the Labour parties. So Liberal Labourism. Cf. LIB-LAB a.
In Liberal Conservative, the adj. has rather sense 4 than this sense; the combination, however, is often hyphened, which perhaps indicates that it is interpreted as = ‘partly Liberal, partly Conservative.’ Liberal Unionist: a member of the party formed by those Liberals who refused to support Mr. Gladstone's measure of Irish Home Rule in 1886.
1801 HEL. M. WILLIAMS Sk. Fr. Rep. I. xi. 113 The extinction of every vestige of freedom, and of every liberal idea with which they are associated. 1842 COBDEN Speech in Morley Life x. (1882) 34/2, I believe the right hon. Baronet
to be as liberal as the noble Lord . 1847 LD. COCKBURN Jrnl. II. 191, I have scarcely been able to detect any Candidate's address which, if professing Conservatism, does not explain that this means ‘Liberal Conservatism’. 1866 GEO. ELIOT F. Holt (1868) 29 Harold meant to stand on the Liberal side. 1879 G. B. SMITH Life Gladstone I. i. 9 Principles..which we usually associate with the name of Liberal-Conservative. 1881 M. E. HERBERT Edith 190 The Liberal Government had outlived its popularity. 1899 LD. ROSEBERY in Westm. Gaz. 31 Oct. 2/2 There is no such party known..to the Speaker or the Whips, as the party of the Liberal Imperialists. 1901 Scotsman 12 Mar. 6/2 Liberal Unionism is still a vital force in British politics. 1909 Daily Chron. 14 July 1/7 Mr. Hancock, the Liberal-Labour candidate for Mid-Derbyshire. 1929 M. BEER Hist. Brit. Socialism (new ed.) II. IV. xvi. 315 In 1898 Gladstone died, and with him one of the main pillars of Liberal Labourism disappeared from British politics.
Now, why it began to be applied to the New Deal politics I don't know, but the word has historically been associated with progressive ideas, as the OED demonstrates.
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