...the result has not in any way measured up to storytelling of the highest quality,according to one judge. Others nominated and passed over that year included Graham Greene, Robert Frost, and EM Forster.
It's easy for us to criticise their short-sightedness at this point, for literature's worth sometimes only reveals itself over time. When I first read Tolkien I knew it was a whacking good story and fired the imagination, but it was only over years that it revealed its deep understanding of human nature in crisis, both individually and collectively, and its examination of the worth of a life and ambivalences of longevity. So I would understand if they were cautious about giving the prize to a merely well-told tale.
Yet the irony is, it is the storytelling they found lacking. I have to suspect, as many readers of Tolkien (and Lewis) have come to over the years, that much criticism of the works comes from A) not liking heroic fantasy or B) not liking the implicit morality.
Here's my best shot: Swedes usually like fantasy literature. It's pretty easy to see why heroic fantasy would carry unendurable heat in 1961, and even flawed, human good guys would be too bright to behold.