Narrative Economics: How Storytelling Becomes Economic Power

The theory of narrative economics describes how storytelling turns private thought into shared information and then into collective action. 

Humans tell stories. 

Stories, whether in the form of news reports, sci-fi blockbuster epics or social media posts, are how our human minds make sense of the data conveyed by others. From reports of survival told around ancient campfires to big screen entertainment today, storytelling is how we coordinate cultural literacy and common knowledge. The natural tendency for common knowledge to be shaped by stories has been transformed by the effects of influence, fame and commerce into a highly lucrative, global industry upon which all other human initiatives have now become dependent.

What we are told to fear, or to want, has a natural tenancy to resonate within a storyteller’s audience. The better a storyteller is at the craft, the more cohesive that resonance can become. The effect is collective. It is how family-bands of hunter-gatherers have coalesced into nations and into a modern, globally connected economy driven not by individual need but by collective demand. That collective demand is cultivated by narrative. 

It is narrative that crafts a socially resonate want, or fear, into a market. 

Markets are popularly thought of as purely commercial. A market for smartphones, dating apps or food for example. From this perspective, markets are populated by brands with something to sell and consumers with money to spend. But markets are not exclusive to products and services. Politics is also a form of market. As is capital. Behind these different types of market is something much more powerful. It is, perhaps, the original market. A type of marketplace in which stories are exchanged for attention, and in which attention offers influence, fame, wealth and control.  

The Marketplace of Ideas

To put this another way, narrative economics is the result of storytelling at scale.

What a particular set of facts means to one group of people may be completely different to another group of people. The difference between these two groups of people are the stories that precede the perception of those same facts. What those facts mean to any group of people is entirely dependent on what stories have resonated enough to shape what that group collectively believes is true. 

Meaning, in this regard, is shaped by narrative. 

What we mean, when we talk about facts or information, is really what we believe we know. Across a group of people, a neighbourhood or a whole nation, this becomes common knowledge. The journey from fact, to meaning to common knowledge can be quite short, but is as powerful as any force of nature.

What we know is a factor of narrative. How we act on what we know is a factor of narrative economics. 

This has been an obscure and esoteric point of debate for centuries. 

Consider Sir Francis Bacon’s Meditationes Sacrae, published in 1597, in which he tells us that, “knowledge itself is power”, or Thomas Hobbes’ Leviatian, published in 1668, in which control over knowledge becomes the operative lever to both personal power and the power of the State. 

It wasn’t until 1791, however, that the power of knowledge, or control over it, became enshrined in law with the First Amendment to the Constitution of the United States of America. 

What freedom of speech means was defined for posterity’s sake in Justice Oliver Wendell Holmes’ dissenting opinion in the U.S. Supreme Court case of Abrams v. United States (1919). His view was that truth was best debated in the open, allowing bad ideas to compete with good ideas. Such public debate was sure to favour the good over the bad. 

He wrote, “the ultimate good desired is better reached by free trade in ideas — that the best test of truth is the power of the thought to get itself accepted in the competition of the market”. 

This view, to protect the public debate of ideas against censorship by government, became globally recognised in 1948 as freedom of speech enshrined in the United Nation’s Universal Declaration of Human Rights. But even legal protection of a human right doesn’t necessarily mean that right is clearly understood. In fact, within today’s technological marketplace of ideas, the concept of debate has been eroded by algorithm and competition over truth can easily be confused with argument by strength of opinion. 

Storytelling, today, has become more valuable than truth itself.

For those concerned with power, including holding onto it, this unkept secret is the key to everything. 

Here’s a related article:

Narrative: Why Media & Entertainment is the World’s Apex Industry

If money is the metric, M&E is near the top of the league tables. But add inherent control over all narrative, and we see all other industries bow before it. 

If control over knowledge is the basis of power, and that control is exercised openly and freely in a marketplace of ideas, then the art of storytelling becomes the central means by which power is manipulated, cultivated and preserved.

Sir Francis Bacon and Thomas Hobbes were themselves the beneficiaries of earlier power brokers who wrote their stories down by candle-light, and at mortal risk, to distribute (and earn) by means of a new technology, the printing press. 

Five hundred years later, that legacy of technology being applied to stories has been industrialised into one of our planet’s most lucrative economic sectors : Media & Entertainment. 

Did You Hear That?

Ok, let’s set the stage a little here. 

Economics is not, in and of itself, concerned with money. Economics is the study of choice. That choice is typically thought of as which product or service to purchase. Which job to spend time and money pursuing. Where to live and whether to buy a home or rent one.

A marketplace of ideas provides a choice between what stories to believe.

Traditionally, the study of economics has focused on supply and demand. But demand is a function of knowledge. Demand for anything is based on what we know about it and why we want it. That knowledge is built with narrative and has effect only when distributed across an audience of consumers.

Without the audience to hear it, knowledge can’t spread. Meaning doesn’t develop. Demand cannot form into a marketplace of any kind.

Consider, the thought experiment of a tree falling in a forest, with no one around to hear it. Does it make a sound?

Newtonian physics would tell us, “yes”. There would certainly be a sound. But common knowledge would suggest that it wouldn’t matter. If no one is there to hear it, it may as well have never happened.

Even Albert Einstein weighed in on this, according to his friend, colleague and biographer, Abraham Pais. Einstein was frustrated with the proliferating thought experiments of early quantum physicists, such as Schrödinger’s famous cat. 

Einstein is said to have asked, “Do you really believe that the moon disappears whenever you stop looking at it?”, according to Pais. Of course it does not, they both knew. But the perception of it does. Giving rise to the concept of reality itself as being relative to what our minds perceive as true.

What Einstein, and others, inadvertently understood was that what we believe and what is true can be two very different things. 

You might need something without knowing anything about it. But, from an economics perspective, there can be no demand for something without telling people about it. One cannot want something without knowledge of it.

Narrative Economics

Humans use stories to entertain, inform and persuade. 

We also use stories to compress complexity, transmit causal models and establish what a group treats as real. Stories generate common frames of reference. These shared interpretive frames are the basis for common knowledge, the kind that lets strangers within the same group, within societies, to coordinate without negotiation every time they interact.

Coordination is the first order effect of storytelling.

Once a population shares a frame of reference, it becomes easier to predict what others will do, what rules will be respected and what future states are plausible. This is the hidden work that stories perform in the background of social and economic life. It is why rumours can move faster than facts and why truth can be subverted by belief. It is why what we are told by others is often more powerful than what we experience ourselves.

The economic consequences of storytelling are straightforward. 

Markets are coordination systems. Signals have effect on price, demand and supply when participants share enough assumptions about what those signals mean. Narrative economics focuses on the mechanisms by which storytelling produces an alignment of beliefs, expectation and behavioural readiness across societies. 

Those mechanisms precede, and often govern, later movements in spending, hiring, voting, investing and regulation. A causal loop develops where audience resonance develops into credibility, allowing capital resonance to support the spending of attention, labour or money.

This framing forces a shift in thought about how humans behave at scale. Instead of starting with markets and asking how people interact within them, we start with shared meaning and ask what it makes possible. Legitimacy emerges when a story reinforces belief. Trust emerges when a story lowers perceived risk enough for commitments to be made. Capital, in turn, responds to the credibility created by these alignments, not to eloquence or novelty as such. This is why a viral story may not result in capital deployment. It also explains why a US$200 million motion picture might flop at the box office.

For clarity, narrative economics is a theory of function rather than content. It does not require us to endorse any given belief system to analyse its economic effects. The question is whether a story can affect how a group coordinates itself, how institutions sustain legitimacy and how trust supports repeated commitments of attention, labour and money. 

Our concern is not necessarily about the content of the story, but in its effect. 

That effect, when applied at scale, is why advertisers will spend over US$1 trillion this year to gain access to consumer audiences. It is why global demand for ever more content encourages ever more storytellers into the marketplace. It is why captains of industry, billionaires and politicians are pouring trillions of dollars into the acquisition of media companies around the world.

That effect is the value of narrative, and why the value of narrative is at the heart of the Media & Entertainment industry’s consistent growth beyond last year’s record US$3 trillion in annual global revenues.

Explore Media & Entertainment further:

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Thomas Kingston

Thomas is our founder, acting Publisher and contributes an outsized proportion of our articles and editorial pieces.

He is an American lawyer & private equity specialist with 30+ years of international experience in investment strategy. He has lived and worked in London, Dubai, Abu Dhabi and Nicosia as both adviser and executive to several of the world’s largest family offices, institutional investors and State-investment companies. He is also founder of Coherent Media Group, a corporate holding company dedicated to media & entertainment businesses globally.

In his spare time, Thomas is a corporate and political speech-writer and has ghost-written numerous Op-Eds, political/espionage thrillers and science fiction novels.