It is individualism vs collectivism.

Socialism is a set of collectivist policies desired or in force while a capitalist society is being consumed (i.e., distribution of goods and services by society's collective dictates).

Capitalism "solves the problem" of production by producing what returns profit (in a market of demands and supplies). Once profit is stamped out, production is unguided except by "society" commanding it (i.e., a command "economy"). Even if this guidance were democratic, it would still be subject to the tyranny of the majority (the bulk of the collective).

Classical liberalism (what you call "true" liberalism) focused on negative freedom. Modern liberalism (what you call "socialism" although it's not: modern liberals are still in favor of regulated but mostly free markets) focuses on ensuring positive freedom. Again, no big deal as long as we understand what each person means when they're talking about being a "liberal". In contemporary world, however, calling yourself a "liberal" in sense of classical liberalism tends to indicate you're that you're an academic, a libertarian, or some variety of free-market capitalist. In contemporary world, the usual meaning when someone says they're a "liberal" is that they're socially liberal, focus on equality and positive liberty. And the usual meaning is entirely correct, even though you apparently want to restrict use of the world to its meaning in classical liberalism.

Couldn't agree more. However I would also add that from a truly liberal perspective the logic behind government intervention is market-driven as opposed to primarily humanitarian. Recognising that markets have failures is a key part of capitalist liberalism, and it is that failure of recognition that makes libertarianism such an unstable and unworkable political philosophy.