Origins of ModAmE "Liberal"

I've been doing a bit of informal research directed to finding out how AmE (political) "liberal" came to mean what it means today. This is a topic that periodically arises in AUE (very often, though not always, as a result of postings by Steve "Purple" Hayes).
What makes this topic confusing for me, an American, is that I've grown up with some understanding of the modern AmE political sense of 'liberal', and it seems that there are at least two other contemporary understandings. One is the sort of romantic notion of 'classical' liberalism we hear about from some self-styled libertarians. They say that liberalism originally referred to a libertarian politico-economic philosophy, as they understand it, emphasizing a small-scale state, economic freedom in the sort of private property sense, as well as political freedom. Most of these libertarians are Americans who themselves grew up with the modern sense of 'liberal'.

Another is the international notion of 'liberal'. But this seems to carry two very different associations. On the one hand, you have the sense of liberalism that I think Steve Hayes has tried to talk about, a sort of core of concern for democracy and basic civil rights. On the other hand, you have the economic-policy 'neo-liberalism' associated with Margaret Thatcher and Ronald Reagan (generally spoken of as 'conservatives' in the US) and others who generally wouldn't be thought of as conservatives (like people in various Continental European countries). For better or worse, no one particularly associates Thatcherism-Reaganism with the *non-economic* side of this non-American notion of liberalism. OTOH, it seems to me that there are people in, say, the former Soviet bloc who are 'liberals' both in the sense of supporting Thatcheresque economic policies and civil liberties.

I am convinced, after doing a bit of research into how 'liberal' was used in political contexts during the past century and a half in the *US*, that the libertarians are basically dead wrong as far as the AmE word 'liberal' goes. Here's what I think happened:
In the 19th century US 'liberal' didn't have much clear political or economic meaning. It was associated more with Britain's Liberal Party, and with the various 'liberal' struggles for democratization in countries elsewhere. My guess is that 'liberal' didn't mean all that much in the US in the 19th century political context because it simply described the mainstream consensus of the AmE political culture during that era. In some respects, though, some of the core of international liberalism probably didn't resonate too much.

Most international liberals would have been opposed to slavery, while many Americans weren't. The core economic policy associated with British liberalism was support for free trade, but there wasn't much opposition to protectionism in the US until the late 19th century (from forces that were beginning to adopt the label 'liberal' and 'progressive' in the more modern sense).
At the same time, 'liberal' had been used from the get-go, even before the 19th century, in less politically-specific senses, senses which are still carried by the adjective today, to some degree. 'Liberal' meant broad-minded, reform-oriented, and to the extent it suggested any sort of attitude towards government, it was that, in a democratic-republican setting, government can accomplish good reformist sorts of things, which would often include measures against corrupt government administration (machine politics, graft, and the like).

I think this "vague good-government-ist reformist" sense of liberalism was probably in place during the late 19th century. By that time, the people who thought of themselves as the enlightened reformists in the US were the people who were coming to be sympathetic to the labor movement and who were coming to be concerned about the concentration of economic power in monopolies and conglomerates ('trusts'). 'Progressive' and 'liberal' were already becoming synonymous in the late 19th century. There were liberals inside both parties, and outside of them, and there were differences between liberal Democrats (who were liberal in a "stand up for the little guy" sense, the various sorts of little guys becoming important constituencies) and liberal Republicans (who, I think, tended to see regulating big business as the right way to go, instead of breaking up big business).

There was never any sudden lurch in meaning in AmE 'liberal'. There was a natural progression from

1) vague notion of anti-corruption reformism, with no particularconcern for any sort of economic policy (other than, I guess, various shades of protectionism, which of course was very non-liberal) and also not much concern for Steve Hayes's core civil-rights sort of liberalism,
to
2a) populist-inspired support-for-the-little-guy-ism, the little guy including, at the relevant time, the labor movement participant, the small farmer, and, in some places, immigrant communities and the black community and, separately at first,
2b) Progressive-Era support for increasing the size and scope of the regulatory state in order to establish some control over the large businesses that were so feared in some quarters of the country

I don't think it was until the New Deal that the Democratic Party found a way to combine 2a and 2b into a workable political formula. With 2a + 2b you basically see the old, pre-Reagan sort of established postwar political culture in the US, and despite the social and political changes that occurred during the Reagan era, most of it is still the core of both public policy and political rhetoric in the US.

Why 'liberal' came to be a sort of 'bad word' after the 1960s is another story, but part of that story is precisely that the 2a+2b 'liberals' dominated mainstream US political culture from 1930 to 1970, and some sort of populist-inspired backlash against that increasingly complacent, elitist, incompetent and out-of-touch establishment political culture was inevitable.