Such rose-colored glasses of the past you have. The handling of the mentally ill in the past was atrocious. Hiding mental illness away is very convenient for society, but it doesn't fix the actual problem.
People who suffer brain trauma often end up with it affecting their personality. It is quite possible that many personality disorders have a physiological basis, one that is not as simple as someone "just stopping their behavior".
Yes, we hid them away, we ostracized them, we caged them, we lobotomized them, we murdered them. I'm not downplaying that by any means.
The physiological and the psychological and the sociological interact to produce psychiatric problems in the forms and rates we see. The fact that we've diagnosed a person with a disorder means that the person is failing to control their condition as well as we desire; It's wishful just-world thinking to believe they have no control whatsoever on the one hand, but on the other hand condemning them for failing to control their condition is needlessly cruel. Some of it is in our head, because the place we exist is in our head. There is still a person living in that head, and they deserve our empathy regardless of why they're behaving the way they're behaving... no matter how much our normal interpersonal script demands culpability of them at times.
We suspend culpability not because "It's the disease doing it, not the person" - the two are not easily separable - but only because culpability has proven not to be effective at enhancing control in the past with this person.
The harsher treatment isn't really what I was talking about. People were often said to be "off" or "crazy", but no one talk about it much. Likely mental disorders were underreported because there was less interest in understanding them and more ostracization of those who were open about it. Classifying mental disorders does not mean we're letting people off the hook.
Like I posted previously, physiological factors with the brain can cause poor emotion and impulse control. Abuse during the developmental stages of the brain could also wire the brain in strange ways that, again, someone may not be able to actually control.
Saying society is "soft" and these people are "weak" doesn't solve anyone's problems.
On the other hand, up until fairly recently in the usa[0], some mentally ill people were held in great regard as faith healers, witches/witchfinders, preachers, etc.
People who suffer brain trauma often end up with it affecting their personality. It is quite possible that many personality disorders have a physiological basis, one that is not as simple as someone "just stopping their behavior".