He argued that the economy was always embedded in society until the nineteenth century tried to rip it free.
Karl Polanyi was born in Vienna in 1886, fled communist Hungary after World War I, spent the 1920s in socialist Vienna, and the 1930s teaching in England. In 1944, while living in the United States, he published The Great Transformation, a book arguing that the self-regulating market economy was not a natural development but a deliberate political project, and a dangerous one.1
His central claim was that before the nineteenth century, economic activity was "embedded" in social relationships.2 People organized production and exchange through reciprocity, redistribution, and kinship, not through price-making markets. Markets existed, but they were marginal, subordinate to the social order rather than organizing it.
The attempt to create a self-regulating market required treating land, labor, and money as commodities. Polanyi called these "fictitious commodities" because none of them were produced for sale.1 Treating them as if they were, he argued, tore apart the social fabric.
Polanyi described a "double movement" in which the expansion of markets provokes a protective response from society, taking the form of labor laws, welfare systems, and regulations designed to shield people from the consequences of unrestrained market forces.1 He saw fascism and communism as extreme versions of this protective response, driven by the social dislocation that market liberalism had caused.
After The Great Transformation, Polanyi took a position at Columbia University in 1947 and spent his remaining years studying the economic systems of pre-modern societies.3 He died in Ontario, Canada, in 1964. His concept of "embeddedness" became a foundational idea in economic sociology, influencing scholars including Mark Granovetter, Immanuel Wallerstein, and Joseph Stiglitz, who wrote the foreword to the 2001 edition.4