The consolidation of territorial states in Central Europe undermined the local customs and institutions that had shaped village life since the Middle Ages. By the end of the eighteenth century unitary law codes overrode rural customs. By distinguishing between public and private law, these codes stripped the organized village community of legal substance. Police and judicial functions once performed within the community were assumed by bureaucrats, and the state meddled with the use of local resources by liberalizing marriage and residence laws. Deprived of political autonomy, the village did remain the core economic and social unit in rural life, controlling access to communal forests and enforcing the rules of three-field agriculture. In the middle decades of the nineteenth century this limited autonomy was undermined as well. Freedom of contract, security of individual property, free transmission of property between generations, and commercialization of landed property struck at the ability of villages to control their material world in customary ways.

Rudolf Hilferding's appointment as finance minister in the newly formed coalition government headed by Social Democrat Hermann Müller in June 1928 marked the peak of an outstanding political career in the German Social Democratic Party (SPD). A prominent member of the Party Central Committee and its “chief ideologue,” Hilferding was an ardent supporter of the coalition tactic. He opposed those in the party's left wing, who demanded that the SPD remain in permanent opposition to the bourgeois state. Instead, he advocated a more flexible political strategy that did not rule out the formation of an SPD alliance with the moderate bourgeois parties. When the SPD leadership announced its willingness to form a coalition government in the wake of the successful Social Democratic electoral performance in May 1928, it reflected the strength of Hilferding and his supporters within the party.