mid-14c., "generous," also "nobly born, noble, free;" from late 14c. as "selfless, magnanimous, admirable;" from early 15c. in a bad sense, "extravagant, unrestrained," from Old French liberal "befitting free people; noble, generous; willing, zealous" (12c.), and directly from Latin liberalis "noble, gracious, munificent, generous," literally "of freedom, pertaining to or befitting a free person," from liber "free, unrestricted, unimpeded; unbridled, unchecked, licentious."
This is conjectured to be from PIE *leudh-ero-, which probably originally meant "belonging to the people," though the precise semantic development is obscure; but compare frank (adj.). This was a suffixed form of the base *leudh- (2) "people" (source also of Old Church Slavonic ljudu, Lithuanian liaudis, Old English leod, German Leute "nation, people;" Old High German liut "person, people").
Who hath indeed, most like a liberal villain,
Confess'd the vile encounters they have had
A thousand times in secret.
["Much Ado," IV.1.93]
Liberal was used 16c.-17c. as a term of reproach with the meaning "free from restraint in speech or action." The Enlightenment revived it in a positive sense "free from prejudice, tolerant, not bigoted or narrow," which emerged 1776-88. In 19c. often theological rather than political, opposed to orthodox, used of Unitarians, Universalists, etc. For educational use, see liberal arts.
Purely in reference to political opinion, "tending in favor of freedom and democracy," it dates from c. 1801, from French libéral. In English the label at first was applied by opponents (often in the French form and with suggestions of foreign lawlessness) to the party more favorable to individual political freedoms. But also (especially in U.S. politics) tending to mean "favorable to government action to effect social change," which seems at times to draw more from the religious sense of "free from prejudice in favor of traditional opinions and established institutions" (and thus open to new ideas and plans of reform), which dates from 1823.
This is the attitude of mind which has come to be known as liberal. It implies vigorous convictions, tolerance for the opinions of others, and a persistent desire for sound progress. It is a method of approach which has played a notable and constructive part in our history, and which merits a thorough trial today in the attack on our absorbingly interesting American task. [Guy Emerson, "The New Frontier," 1920]