The fundamental instrument of human culture, economics and politics can be distilled down to one simple thing: strategy.
A common aphorism posits that, “everything starts with a story.”
For us humans, that may be true. We use story to share understanding. It is, perhaps, our most ancient technology. Story-telling can, in fact, be thought of as a critical characteristic of our species.
At its most basic level, a story is any human expression of meaning.
An artist may create a painting of a beautiful landscape for no reason other than its beauty. It is a story. A photo of a beautiful sunset. A single musical note, played by a solo violinist and held just for the appreciation of its sound. This is a story.
It is entirely possible to tell a story in song, in paint or by word. All Artistic expressions of every type are stories told across different formats. What a story means may be decipherable only to the story-teller and convey no more than casual observation or feeling.
Art tells a story, and stories can be told for no other reason than to tell them as art for its own sake.
When purpose is applied to story, however, something else emerges.
The Mechanism of Human Coordination
Some stories don’t persist long. Others, however, resonate enough within an audience to become entrenched in common knowledge, belief and who we identify with as a people.
Picture this scene, if you will.
Imagine a family of hunter-gatherers 10,000 years ago, at dusk. They are huddled around a meagre fire as snow continues to fall after a long winter.
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They are hungry. Worn down.
A child remembers something she saw that day. She looks up at her mother and the others with excitement as she tells them of a deer with a baby. It was so nice to see.
A simple story, with no purpose other than to express wonder at something.
The others around the fire share a sense of pleasure at the simple wonders in a child’s eye. Love.
Then the eldest among the family thinks on the child’s story. He knows that this family is struggling with the long winter. He wants them to feel hope and to find strength to persevere. He speaks of “baby deer” as proof that spring is near.
The story is now narrative. Strategically adapted to raise his family’s spirits, provide them with hope and prepare them for the end of a long winter.
Then the best hunter among the family thinks on the story. He asks the child to tell them where and when she saw these animals. The narrative now shifts.
The child explains where and when.
The best hunter then describes how he would go out in the morning to hunt these deer and bring back meat so that they might survive. The narrative now changes to planning and to the coordination of others for the coming hunt.
A story becomes narrative when it is applied to a purpose. For our family of hunter-gatherers, narrative catalysed social cohesion and coordination as a survival mechanism.
Fast forward 10,000 years and narrative remains the fundamental tool of human cohesion, coordination and control across nations, generations and markets. It is now enhanced in reach and longevity by technology and an audience of over 8 billion of us.
Going Viral
The notion that stories have an effect on humans has been apparent since ancient times. But it wasn’t until much more recently that economists began to recognise that a good story can change how we choose to risk scarce resources and place a value on things.
In 2013, three academics, Robert J. Shiller, Eugene F. Fama and Lars Peter Hansen, were awarded the Nobel Prize in Economic Sciences for their empirical analysis of asset prices. In particular, Shiller was recognised for his work on asset price volatility, speculative market bubbles and how humans react in ways that move markets.
Until then, most economists would openly discuss markets as rational, efficient economic engines fuelled by supply, demand and objective data. What Shiller observed was that a good story could disrupt those dynamics to cause irrational changes in demand that are not supported by market supply or data.
In his 2019 book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events, Shiller observed how some stories spread across populations in a manner similar to epidemics. This was based on his 2017 paper published in the American Economic Review. In these works, he coined the phrase, “going viral” to explain how particular stories gained sufficient traction among consumers to drive market demand up or down.
However, while Shiller demonstrates that narratives can influence market behaviour, his treatment remains primarily descriptive of the effect. It does not fully resolve the structural role of narrative as a coordinating mechanism that supports transactions, shapes risk tolerance and governs the allocation of capital at scale.
Shiller observed narrative as an exogenous influence on markets. He established that narratives influence economic outcomes, modelling their spread as a form of social contagion.
His framework treats narrative as an external force acting upon markets.
By contrast, a wider and deeper view of Narrative Economics treats narrative as core economic infrastructure: the mechanism through which economic coordination occurs, risks are interpreted, trust is formed and transactions are ultimately executed.
Markets do not simply respond to narratives; they are constituted by them. Without a structural account of how narrative generates credibility, shapes trust and enables transactions, the explanatory power of Shiller’s epidemiological approach to Narrative Economics remains incomplete.
However, once narrative is viewed as endogenous infrastructure around which economic coordination and transaction occurs, then the origin and mechanics of economic markets begin to clarify.
Narrative, Audience and Transaction Mechanics
There is a difference between a story and narrative. The later is built from the former. That construction implies intent. Purpose.
Any story is any expression of meaning. A story may convey information, emotion or interpretation to generate audience resonance, even without a strategic objective. Art, for its own sake.
A story does not, in itself, coordinate behaviour until someone puts it to use.
Narrative is the purposeful organisation and deployment of story by a narrative agent.
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Narrative is not incidental, it is constructed. Narrative is defined by purpose, with an intent to organise meaning toward an intended outcome.
A story becomes narrative only when purpose is applied.
Creative Agents
Creative agents are the artists who express meaning in the form of stories.
They generate the underlying material as music, art or prose that either resonates with an audience, or doesn’t. A creative agent may, or may not, have an objective in mind when they create. When they do, when they apply purpose to their story, they become narrative agents.
Narrative Agents
Narrative agents apply purpose to story to construct and deploy narrative to achieve an objective. They apply strategy to story. They have an objective, and they orchestrate stories to achieve it.
In doing so, narrative agents perform the most fundamental economic function. They identify or cultivate audience resonance, organise stories strategically and present propositions to the audience for consumption. A narrative agent seeks to induce transaction.
Audience as Substrate
An audience is any population capable of receiving, interpreting and acting upon narrative. Without an audience, narrative cannot be applied, propositions are not presented and transactions do not materialise. An audience is the necessary substrate out of which all markets form.
When a story conveys meaning in a way that resonates with an audience, it reduces cognitive friction, facilitating the evaluation of propositions injected by a narrative agent.
Without an audience, propositions cannot disseminate at scale across a population.
Market Formation
A market forms where an audience exists, narrative is applied to that audience, propositions are presented within that narrative and consumers make decisions on whether or not to engage in transaction.
Narratives coordinate an audience into a market.
Without narrative, audience resonance remains undirected, propositions do not scale, transactions are isolated and markets do not form or persist.
Proposition
Within any narrative is a proposition; an expression of purpose within a narrative, presenting the audience with an opportunity to act.
A proposition encodes the purpose of the narrative agent and catalyses a decision point for an audience. It may be explicit (i.e., purchase, invest, vote) or implicit (i.e., assign value, adopt belief, confer status).
Transaction Mechanics
From this perspective, the operation of markets can be expressed as a structured sequence:
Step 1 — Story
Expression of meaning by a creative agent
Step 2 — Audience Resonance
Audience response to story
Step 3 — Narrative
Purpose applied by narrative agents to strategically organise and deploy a resonating story to convert audience members into consumers
Step 4 — Proposition
Purpose expressed as an opportunity for action
Step 5 — Trust Evaluation
An audience assesses the credibility of a narrative agent and the perceived alignment of interests
Step 6 — Decision
Members of an audience decide whether to act on the proposition
Step 7 — Transaction
Action is taken as financial or social consumption
Trust
Trust is the willingness of an audience to accept a proposition and expend resources under conditions of uncertainty. It functions as the gating mechanism between proposition and transaction. Without sufficient trust, a proposition will be rejected and transactions do not occur.
Within a marketplace, trust is formed through an audience’s evaluation of a narrative agent’s credibility and the perceived alignment of purpose within the narrative.
Trust does not require certainty. It requires sufficient tolerance of risk.
Credibility
Credibility is the accumulated capacity of a narrative agent to generate trust within an audience. It reduces cognitive friction, increases acceptance of propositions and enables repeated successful transactions.
Credibility is built through consistent delivery on prior propositions, alignment between narrative and realised outcomes and the stability in perceived purpose.
However, when outcomes fail to match narrative expectations, or perceived purpose shifts or is revealed as misaligned, trust is repeatedly broken and credibility erodes. Credibility loss directly impairs future transaction capacity within an audience.
Narrative Capital
Narrative capital is the accumulated stock of credibility held by a narrative agent within an audience. It represents the ability to organise audience attention, the capacity to present propositions that are accepted and the potential to induce transactions at scale.
Narrative capital accumulates when narratives generate sustained resonance demonstrated by propositions being accepted and transactions being successfully completed. These outcomes reinforce credibility and accumulate additional narrative capital.
Narrative capital, as it accumulates, lowers resistance to propositions made by the narrative agent, increases conversion efficiency and enables larger or higher-risk transactions. Narrative capital is expended when new propositions are advanced and audience action is sought, particularly when purpose extends beyond previous propositions.
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However, a narrative agent’s stock of narrative capital can be eroded. Narrative capital declines when trust is reduced, credibility is impaired or when perceived purpose is misaligned.
This can happen gradually over time or rapidly, following events that reveal misalignment.
Markets
In mainstream economics, a market is any system in which buyers and sellers exchange goods, services or information. For much of the past several hundred years, economists have focused on the fact of a market’s existence as being self-evident. A market exists whenever and wherever transactions occur and are measured by the aggregated transaction value. From this perspective, the supply of goods and services is weighed against the demand for those goods and services, as if a scale between them might naturally balance.
Markets are, however, a distinctly human construct. They cannot exist without information being formed into meaning and proposition and trust. Without an audience of consumers, supply is irrelevant at scale. Without an audience of sellers, demand is irrelevant at scale.
Without narrative, audiences are not coordinated, propositions are not evaluated and transactions do not scale. Markets do not form. Without narrative, a system of exchange is irrelevant.
Narrative is the connective tissue that forms markets through audience resonance, proposition and transaction. It is the mechanism through which audiences are coordinated into markets and by which transactions scale and through which systems of exchange become efficient, or not.
Markets persist where narrative agents continue to coordinate an audience, propositions continue to be accepted and transactions continue to occur. When narrative agents lose credibility and propositions fail, then coordination breaks down, transactions decline and markets dissipate.
Narrative, then, is the deployment of story by narrative agents seeking to coordinate an audience for the purpose of disseminating propositions and engaging in transactions at scale. This is how markets form and fail.
A story alone may generate resonance within an audience of potential buyers and sellers. Only narrative can form that resonance into a marketplace.
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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.
