When the Great Depression of the 1930s swept across the Western industrial democracies, it undermined classical liberal orthodoxies of public finance. Economic crisis called into question the predominant conviction that government should balance its budget, maintain the gold standard, and let business reequilibrate of its own accord during economic downturns. Demands were voiced for extraordinary government actions on behalf of industrial workers, farmers, and other distressed groups. Established political coalitions came unraveled, and new opportunities opened for politicians and parties that could devise appealing responses to the exigencies of the decade. One of the greatest dilemmas was how to cope with an unprecedented volume of unemployment in suddenly and severely contracted economies.

Out of the traumas of the 1930s came new political and theoretical understandings of the much more active roles that states might henceforth play in maintaining growth and employment in advanced industrial-capitalist democracies. Thus was born the “Keynesian era,” as it would retrospectively come to be called in honor of the breakthrough in economic theory embodied in John Maynard Keynes's 1936 book, The General Theory of Employment, Interest, and Money.

National reactions to the crisis of the depression varied widely, however. In many cases either conservative stasis or a turn toward authoritarianism prevailed. Among the countries that avoided the breakdown of democratic institutions, Sweden and the United States were the sites of the boldest responses to the crisis by reformist political leaderships.