The originality of Karl Polanyi's work in the interwar period has gained increasing recognition in recent years, during which time the major debate on modernity has erupted. In order to link Polanyi's work with this debate, I will first discuss his legacy on the controversial concept of progress, and then relate his position to this debate. It is my contention that Polanyi's position combines the better aspects of the two rival approaches to modernity. I will then re-link Polanyi's thought to the intellectual figures, movements and climate of his time and thereby disclose a curious affinity between his thought and the Critical Theory of the Frankfurt School. This affinity can best be understood within the parameters of the historical context that they once shared.