Narrative Economics

Economics isn’t just about equations or data. It’s about stories. The myths we craft, and the legends we spread, shape not only how we perceive markets but also how we act within them. If you’ve ever believed in the “invisible hand” or the sanctity of “free markets,” you’ve been guided, perhaps unknowingly, by a carefully constructed economic narrative. But what happens when these myths are deliberately shaped to influence perception and direction?

Shiller’s Lens on Storytelling
In his groundbreaking work Narrative Economics, Nobel Laureate Robert Shiller argued that stories, emotional, relatable, and contagious, spread like viruses, influencing market behaviour. His focus was on the spontaneous emergence of narratives, such as those driving economic booms or panics, and their role in shaping financial decisions.

This perspective revolutionized how we think about market dynamics, offering a framework for understanding the "why" behind collective economic movements. However, what if the stories influencing markets weren’t just organic phenomena? What if they were deliberately shaped, mythologized, and weaponized to direct perception and economic behaviour?

This is where the deliberate construction of myths and legends in economic thought comes into play. Unlike the viral narratives Shiller describes, these myths are intentional—crafted to build trust, justify policies, and mobilize collective action.

Mythmaking in Economics—The Strategic Art of Influence

1. Myths as Frameworks for Trust

Economic myths create the mental scaffolding that allows societies to function. The concept of “rational markets” is a case in point. Popularized by efficient market hypothesis theorists, this myth suggests that markets are self-correcting and always reflect true value. While this narrative is elegant and reassuring, it has often been weaponized to resist regulation, foster speculation, and dismiss systemic risks, until crises like the 2008 financial collapse reveal its fragility.

Yet, the myth persists. Why? Because it provides a sense of order in an otherwise chaotic financial system. Rational markets are not truths, but legends that simplify complexities, fostering trust and participation in global systems.

2. Viral Narratives vs. Crafted Myths

Shiller’s narratives often arise organically: the stories of "housing prices always rising" or the “dot-com boom” spread rapidly, driven by collective hope or fear. In contrast, crafted myths are the deliberate work of policymakers, economists, and businesses. For example:

• The Invisible Hand: Adam Smith’s metaphor was a small part of his work, yet it has been amplified into a near-religious defence of laissez-faire capitalism.
• The American Dream: This powerful myth aligns economic growth with personal opportunity, motivating millions to accept inequalities in pursuit of upward mobility.

These myths are not accidents, they are strategically cultivated to align with cultural values and drive economic behaviour.

3. Economic Myths as Tools of Power

The deliberate crafting of myths often serves those in power. Policymakers and institutions use myth-making to control narratives, bolster confidence, and justify actions:

• The Myth of Innovation-Driven Growth: This narrative drives massive public and private investment in technology, even when results may not justify the hype.
• The Green Economy Legend: While addressing real concerns, this myth aligns sustainability with profitability, fostering new markets for renewable energy while sidestepping deeper systemic reforms.

These myths shape what people believe is possible, and, critically, what they believe is inevitable.

The Rise of Cryptocurrencies

A modern example of deliberate myth-making is the narrative surrounding cryptocurrencies. Early adopters framed Bitcoin as a revolution against centralized banking, a story of empowerment and financial freedom. This narrative gained traction not because of Bitcoin’s technology but because of its mythic resonance with societal distrust in institutions post-2008.

As the narrative evolved, it drew speculative investors, transforming a countercultural movement into a mainstream financial phenomenon. Today, the myth of cryptocurrencies as "digital gold" sustains their value, even as regulatory and environmental concerns mount.

Implications and Opportunities: Harnessing the Power of Myths

1. Recognize the Myths at Play:

   • Identify the dominant myths influencing your industry. Are they aligning public sentiment with reality, or are they serving vested interests?

2. Strategically Shape Your Narrative:

   • Businesses, policymakers, and thought leaders must craft their myths with care. Positioning your organization within a broader narrative can elevate its legitimacy and appeal.

3. Challenge and Disrupt Unhelpful Myths:

   • Not all myths are benign. Challenging entrenched legends, like the inevitability of shareholder primacy, can open space for innovative and equitable alternatives.

Which myths shape your industry today? Are you riding a wave of perception, or are you challenging outdated legends to craft something new? Share your thoughts or connect to explore how deliberate storytelling can align with your goals.

Subscribe for more insights into the myths shaping markets and how you can strategically craft narratives that drive success. Let’s shape the legends of tomorrow, together.

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