Here is what one writer had to say (Daniel Yergin, The Commanding Heights):
How was the meaning of this word altered so dramatically in the United States? During the First World War, some of the leading Progressive writers began to use the word liberalism as a substitute for progressivism, which had become tarnished by its association with their fallen hero, Theodore Roosevelt, who had run and lost on a Progressive third party ticket. Traditional liberals were not happy to see their label transformed. In the 1920s, The New York Times criticized "the expropriation of the time-honored word 'liberal' " and argued that "the Radical-Red school of thought ... hand back the word 'liberal' to its original owners." During the early 1930s, Herbert Hoover and Franklin Roosevelt duked it out as to who was the true liberal. Roosevelt won, adopting the term to ward off accusations of being left-wing. He could declare that liberalism was "plain English for a changed concept of the duty and responsibility of government toward economic life." And since the New Deal, liberalism in the United States has been identified with an expansion of government's role in the economy.
And here is the NYT article which the above quote refers to:
New York Times (1923-Current ﬁle); Sep 28, 1924;
ProQuest Historical Newspapers: The New York Times (1851-2009)
Changes Wrought by the World War have not been conﬁned to a shifting
of frontiers, of economic power, of military domination, of ethical
standards and of ideas in general. There has also been a change in
names and labels. One such notable case at revolution in nomenclature
has been the expropriation of the time-honored word “Liberal." Before
the war the spectrum of party alignments was well established. Reading
from right to left, we had the Conservative, the Liberal, the Radical,
and the Revolutionary or Extremist. And they stood, respectively, for
a minimum of social and political experiment, for generous experiment
combined with a certain degree of caution, for bold experiment without
excessive counting of the costs, and for change at any price. The
armistice and after brought about a violent telescoping of the last
three terms into one. In the newspaper headines it was merely a
question of space whether something was Liberal, Radical or Red.
Out of that confusion we are beginning to merge. That much still
remains to be done in the interest of clarification is strikingly
shown in ERNEST BOYD’S “Portrait of a Liberal” in the October Bookman.
It is a brilliant and mordant character study in which there in some
exaggeration and a great deal of truth—provided we concede the writer
his definition of Liberal. The man Mr. BOYD has in mind is obviously
not the pre-war liberal of the Woodrow Wilson or Lord Morley and
Haldane type. He is thinking of the “Liberal" weeklies which are not
Liberal at all in the established sense, but which represent a blend
of the pre-war Radical and Red. Of the "Liberal" of today Mr. BOYD
says, among a good many other unpleasant and true things:
He is perpetually engaged in querelous denunciation of the evils of
political democracy, and more often than not, he has discarded the
simple gospel teaching of his parents. * * * Whatever is, is bad;
whatever was, is worse; whatever will be, is better.
It may be that reaction to the Conservative side and raids from the
radical side have cut into the Liberal strength; but to the extent
that the Liberal, the historic middle-of-the-road man survives
—and there are still a great many millions of him — the Liberal has not abandoned his faith in political democracy for Mussolinism on the
one hand or the Economic State on the other. So, too, it is obvious
that Mr. BOYD is not speaking of true Liberal at all when he purports
to describe an attitude to one result of the war:
The oppressed nationalities, whose woes had formerly incited him to
such tearful eloquence turned out to be monsters of imperialism,
drilling and arming and taxing, oppressing those in their power, in a
thoroughly democratic imperialist manner.
This does not come home to the pre-war Liberal, though it holds
perfectly for Radical-Red opinion. The Liberal is not particularly
delighted with the symptoms of exaggerated nationalism in Poland, in
Yugoslavia, in the little two-by-four nationalities which the war
liberated or restored. But he does not tear his hair about it. He
regards these manifestations as inevitable growing pains which will he
outlived, as almost natural symptoms in nationalities which have been
oppressed for centuries and are now experiencing a rush of freedom to
the head. There are still millions of Liberals who refuse to think
that the way to bring peace to the world is to tear up every peace
treaty and start all over again—for chaos.
From only one point of view may a general recasting of the peace
treaties and undoing of the war facts be considered desirable. When
Alsace-Lorraine has been handed back to Germany, Prague to the
Hapsburgs, and Arabia and Palestine to the Turks, the Radical-Red
school of thought might be compelled to hand back the word “ Liberal"
to its original owners.