It originally referred to freedom. In Latin, liber means free; hence, the "liberal arts" are those arts which the Greeks and Romans thought a free man should study. (Other arts and sciences, by contrast, were those which they thought were only fit for a slave.)

Liberalism became a political term during the Enlightenment in the 1600's, to describe an ideology centered around individual freedom. Political liberals, such as Algernon Sidney, John Pym, and (most famously) John Locke, repudiated absolute monarchy and the established church in favor of equality before the law and wide individual liberty. This ideology, now called "classical liberalism," is at the root of all modern mainstream political thought; in the Declaration of Independence, Jefferson was virtually plagiarizing Locke's famous Second Treatise on Government.

In its time, classical liberalism was definitely viewed as progressive, as they wanted to change the established society by limiting royal prerogative and expanding individual rights. However, conservatives today would also agree with virtually all the classical liberals' position. In fact, modern libertarians sometimes refer to themselves as "classical liberals" - and they do have a point in that classical liberals believed firmly in individual rights and laissez-faire economic policy.