From The New Yorker:
When the first Nobel Prize in Literature went to Sully Prudhomme, in 1901, the choice was regarded as a scandal, since Leo Tolstoy happened to be alive. The Swedish Academy was so unnerved by the public criticism it received that its members made a point of passing over Tolstoy for the rest of his life—just to show, apparently, that they knew what they were doing the first time around—honoring instead such immortals as Bjørnstjerne Bjørnson, José Echegaray, Henryk Sienkiewicz, Giosuè Carducci, Rudolf Eucken, and Selma Lagerlöf. When you have prizes for art, you will always have people complaining that prizes are just politics, or that they reward in-group popularity or commercial success, or that they are pointless and offensive because art is not a competition. English believes that contempt for prizes is not harmful to the prize system; that, on the contrary, contempt for prizes is what the system is all about.
More here.