Beat butter in a mixer bowl with electric mixer until softened. Add brown sugar and beat until fluffy. Add egg, milk or water and vanilla; beat well. Add the flour mixture; beat until well combined. Stir in nuts and butterscotch morsels.
Shape into 2 (8 inch) logs. Wrap and chill for several hours or freeze for 1 hour. Cut into 1/4 inch slices. Place 1 inch apart on an ungreased cookie sheet. Bake in a 375 degree oven for 8 minutes. Cool on wire rack. Makes 5 dozen cookies.