Liberalism more specifically (and confusedly) refers to two distinct tradition, a philosophical tradition more precisely known as classical liberalism and a political tradition that can be called political liberalism.
Unrelatedly, the term Liberalism also denotes a nineteenth-century movement in Christianity; see [Liberalism, Religion]?.
Classical liberals have an identified theory of liberty, that insist on notions of spontaneous order, natural law, property rights, and individual responsibility. They tend to strongly differentiate genuine classical liberal authors from their contemporaries, and recognize among them John Locke (as opposed to Hobbes), David Hume (as opposed to Kant), Adam Smith (as opposed to Rousseau); they consider John Stuart Mill as an author who wrote quite interesting things but missed essential points and does not quality as a genuine classical liberal; they much prefer Frederic Bastiat as a contemporary. They favor [Free Market Economy]? and reject any kind of government influence in society. They thus tend to be defiant to any kind of politics, including politics done by liberal politicians. Historically, classical liberalism has opposed mercantilism and socialism (as well as any form of collectivism).
Political liberals vary considerably in what they consider are the "liberties" they defend, and they do not generally refer to any consistent theory of it. Depending on countries, political liberalism may refer to some form of minarchism (see in France "liberals"), although often with a more or less deeply marked evolution toward [social democracy]? (see UK "liberal-democrats"). In the USA, "liberals" have gone all the way to extreme form of social-democracy and even socialism, whereas in other countries, liberal parties are conservative (Japan) or even far-right (Austria). Liberal-democrats tend to equally consider as part of their tradition many classical authors of contrasted opinions such as John Locke, Thomas Hobbes, Jean-Jacques Rousseau, and Immanuel Kant, although with a slight preference for classical liberal authors, in as much as they tend to more consistently claim to defend liberty; they often consider John Stuart Mill (who was also MP) as a great author very representative of their ideas. They tend to identify to great leaders of liberal parties, particularly in Great Britain (e.g. Gladstone? or [Lloyd George]?). Historically, political liberalism has opposed political conservatism; later evolutions of political liberals views around the world depend completely on national specificities of liberal parties.
These two traditions have in common that they claim to defend invidividual liberty against the arbitrary power of government, and there has been some influence of the philosophy on the politics at specific points in history, but they are quite distinct.
Historically, both traditions see part of their roots in the seventeenth century english movement that has opposed (absolute) monarchism?, mercantilism, and various kind of religious fundamentalism, preaching liberty and tolerance; but even then, they have different interpretations of this heritage. John Stuart Mill, a paradigmatic political liberal, was mostly a classical liberal, but had socialist influences from his wife that some political liberals embrace whereas classical liberals reject them. Gladstone?, a political liberal, was influenced by his correspondance with [Lord Acton]?, a classical liberal.
Since late nineteenth century, english political liberals seem to have identified with some kind of social-democracy? (see [Liberal Democrats]?) as a moderate way between conservatism and socialism. In the UK, liberalism is generally connected with the history of the and the "moderation" sense of the word liberal.
In the United States, starting with the increase in size of government with the Great Depression during the 1930s, political liberals advocated government programs as a solution to many economic and societal problems. Political liberals and the word "liberalism" in the USA has thus become synonym with the most extreme form of [social democracy]?, or even to socialism.
Attempts to fit the evolutions of political liberalism as an extension of the classic tradition of liberal thought has led such political liberal thinkers to invent new liberalism in the 1930s. Classical liberals consider that the amends to liberal doctrines to allow for extended government intervention in economic matters are actually utter negation of basic liberal tenets, and rather call that revisionist liberalism. Recently, many social-democrats have tried to find within classical liberalism a separation between political liberalism and economic liberalism, so as to be able to agree with one and disagree with the other. Classical liberals reject such a division, because they assert their tradition is based neither on an economic nor on a political doctrine, but rather on a theory of law. In any case, modern political liberal thinkers tend to not claim any particular filiation with the classical liberal school of thought, and rather to insist on their endorsement of political liberals governments of the nineteenth century.
Finally, in some countries, particularly european countries, where historical liberal parties suffered complete demise or interdiction by a communist regime, the renewed liberal parties that emerged tended to return to the classical liberal influence stripped of most of the social-democrat distortion. The political programmes of liberal parties are thus some forms of minarchism that classical liberals view as much friendlier to their ideas than what proposes any other party, but doesn't match either the diversity of their opinions (see anarcho-capitalism) or the strictness of their anti-political claims (see libertarianism).
The word "liberalism" in the USA conveys some extreme form of [social democracy]?, quite opposite to the classical liberal tradition.
To differentiate the two traditions, classical liberals in the USA now call themselves "libertarians". But this in turn causes confusion in other countries, where the word libertarian was traditionally used to denote some kind of left anarchism.
Attempts by UK conservatives to use the term "liberal" in the American sense as a derisory term for people they don't like has caused a fair degree of confusion. See [Looking for an Enemy].
In continental Europe where liberal parties tend to defend classical liberal tenets, the term "liberal" is less confusing, but those who feel part of the classical school of thought rather than to any political party insist on being "classical" or genuine liberals.
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