I just finished reading George Marsden's book, Fundamentalism and American Culture. The thesis of the book is that Fundamentalism was a conservative reaction to modernism.
Modernism claimed that it had destroyed Christianity by introducing the higher critical study of Scripture and the theory of evolution. Modernism captured the universities with evolution as a modern alternative to creation, and challenged the seminaries and churches with higher criticism, which undermined the unity and integrity of the Bible. Christianity, according to modernists, was no longer a viable worldview; therefore, it must be abandoned in favor of philosophical naturalism, or Atheism. Liberalism and Fundamentalism were the two responses to modernism within the "Christian" camp, both of which tried to salvage Christianity from total destruction.
Liberalism sought to save Christianity by changing its essential character. Liberals accepted the rationalistic presuppositions of modernism and agreed with its conclusions, but it defined the Christian faith in such a way that modernist conclusions could not undermine it. Schleiermacher was the first to argue in complete form that religion is the "feeling of absolute dependence," which is a purely subjective experience of faith and not based on anything objective. Defined this way, Christianity need not have any basis in objective facts, such as the resurrection of Christ, Nicean Christology, and the historical fall of Adam. The historicity of all such stories could be rejected and the Christian faith would remain in tact, since Christianity was the experience of dependence not objective facts.
While liberalism sought to save Christianity from modernism by agreeing with modernism and re-defining Christianity, Fundamentalism tried to save Christianity by agreeing with the modernist rationalistic presuppositions, while denying its conclusions. Fundamentalism had no problem with the notion that the human mind is the starting point of knowledge. They approved of scientific inquiry and discovery, but they disagreed modernist conclusions. So, Fundamentalists set out to beat the modernists and liberals at their own game, to argue against higher criticism, and to try to undermine evolutionary theory with science. The Fundamentalists often were put to shame when they tried to fight the liberals and modernists on their own terms both because they accepted modernist presuppositions and because they often didn't study sufficiently.
J. Gresham Machen
Machen, a conservative "Fundamentalist" Presbyterian, argued against liberalism on two fronts. First, he claimed that liberalism is not Christian and that while it tended to use historic Christian terminology, it filled those terms with new and foreign meaning, such that it changed virtually every historic doctrine of the faith. Second, he claimed that liberalism is not scientific because it divorced the faith from science, grounding religion in pure experience, cutting it off from science.
Matthews, a liberal Protestant, argued that liberalism is both historical and scientific, contra Machen. First, it is historical. He argued that what liberalism has in common with historic Christianity is the "feeling of absolute dependence" which is the religious experience of historic Christians. Doctrines have always changed. The Bible itself shows doctrinal progression. Liberalism simply moves along that continuum, while retaining the kernel of the ancient subjective faith. He also argued that though religion and the religious experience is not based on science, it nonetheless provides science with data to study. Theology, then, is the emperical study of human experience in the Bible, in church history, and in the individual consciousness. Liberalism is therefore scientific.
The problem with both liberalism and Fundamentalism is that both begin with modernist starting points. The proper foundation of epistemology is not the independent mind of man as the Enlightenment and modernism suggests but the Word of God, which must be presupposed for any knowledge to be possible at all.