> did major markets ever really have a huge problem with lack of liquidity, 20 or 30 years ago before HFT?

Yes. huge problems. 20 years ago (1992) stocks were traded in 1/8ths or 1/4s (minimum spreads of (12.5 or 25 cents) often more than one tick wide. By the turn of the century stocks had all been decimalized (traded in pennies) but spreads were still wide.

This article: page 25 of this paper[1] shows the average stock spread of S&P500 stocks being squished from 8cents in 1997 to less than 2cents in 2010.

[1] www.kellogg.northwestern.edu/faculty/...d/murphy_kim_spread.pdf