The Great Depression of the 1930s was widely depicted as a challenge to the rise of liberalism as the dominant ideology for structuring society.
Variants within liberalism arose as a consequence of the economic depression, and the depression served to strengthen the supporters of big government liberalism.
Two recognised variants of liberalism are classical liberalism and social liberalism. The former is a more anti-government ideology, while the latter recognises a role for government in many more areas than classical liberals would permit.
Classical liberals support free trade, oppose big government, prefer free-market solutions to environmental problems, and advocate a peaceful foreign policy. In brief, this form of liberalism would shrink the State dramatically and allow private enterprise, churches, and self-help groups to play the leading role in civil society. Government would be limited to enforcing contracts and protecting private property. Some authors in the classical tradition include: Ludwig von Mises, John Locke and Thomas Jefferson. A modern day proponent is Congressman Ron Paul.
Social liberalism, on the other hand, developed much of its foundational elements from the utilitarian writings of John Stuart Mill. Mill wrote of the 'Greatest Happiness Principle', which can be interpreted as requiring the government to undertake positive measures that enhance social welfare. While Mill makes similar a priori assumptions about self-interest, social liberalism adds a welfare dimension not found in classical liberalism. Left-wing politicians in many Western countries (for example, Tony Blair's social democratic Labor Party) have been inspired by this form of liberalism.
Classical liberals disagree with social liberals because they dispute the idea that liberalism is an ideology of welfare. Rather, it is the fundamentals of individual liberty, limited government, free markets and peace that matter. The main areas of disagreement arise with the positive versus negative interpretations of freedom, and the respective roles for government these entail. For classical liberals, the role of the State is restricted to that of an umpire operating within, and enforcing, democratically expressed rules. But social liberals would argue that it is legitimate for the State to redistribute income from the rich to the poor if this increases overall utility.