Polanyi was active in politics, and helped found the National Citizens' Radical Party in 1914, serving as its secretary.

Polanyi was well educated despite the ups and downs of his father's fortune, and he immersed himself in Budapest's active intellectual and artistic scene.

[9] Polanyi founded the radical and influential Galileo Circle while at the University of Budapest, a club which would have far reaching effects on Hungarian intellectual thought.

During this time, he was actively engaged with other notable thinkers, such as György Lukács, Oszkár Jászi, and Karl Mannheim.

[citation needed] Polanyi was a cavalry officer in the Austro-Hungarian Army in World War I, in active service at the Russian Front and hospitalized in Budapest.

Polanyi was asked to resign from Der Oesterreichische Volkswirt because the liberal publisher of the journal could not keep on a prominent socialist after the accession of Hitler to office in January 1933 and the suspension of the Austrian parliament by the rising tide of clerical fascism in Austria.

He left for London in 1933, where he earned a living as a journalist and tutor and obtained a position as a lecturer for the Workers' Educational Association in 1936.

Polanyi joined the staff of Bennington College in 1940, teaching a series of five timely lectures on the "Present Age of Transformation".

However, his wife, Ilona Duczyńska (1897–1978), had a background as a former communist, which made gaining an entrance visa in the United States impossible.

In the early 1950s, Polanyi received a large grant from the Ford Foundation to study the economic systems of ancient empires.

His seminar at Columbia drew several famous scholars and influenced a generation of teachers, resulting in the 1957 volume Trade and Market in the Early Empires.