“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists,” British economist Joan Robinson once piquantly remarked [1]. She isn’t very far from the truth; a running joke among economists is that for every theory posited by one, there is an economist with the exact opposite argument. This is the implication of economists making normative statements; ones with personal value judgement [2], when developing theories to make sense of raw data. Economists tell a story with graph. Narratives are subtly used to invoke a claim, so that an economist can present his theoretical hypothesis. The two are inexorably intertwined, and in this paper I will show how narrative techniques are employed by economists to make their argument.

Firstly, there is a structure within most economic theories that resemble a narrative [3]. A narrative has the following elements; characters, event, plot and conflict [4]. Economists are in a sense like poets, using graphs as metaphors for events that take place in an economy and succinctly representing that in a pictorial form. Language here can be mathematical or graphical, but the intuition is always communicated via narrative. An economist has to establish his characters (be it a country, company or an individual), events (exogenous or endogenous shocks to an economy), plot (the sequence of events and consequentiality) and conflict (misallocation of resources). It’s hard to find any economic theory without the above elements, and these are structurally ingrained in economists when they try to form a rhetorical argument as to why their theory is correct [5].

The characters in an economic theory or story are very clearly stated, even if personal names are not given. For example, take the concept of asymmetric information, where one party has more information than the other in a transaction [6]. The conflict has also been called the principal-agent problem, easily setting up both the protagonist and antagonist for an event. The principal is the director or CEO of a company, and the agent is one of the executives in the company. Since the principal is not always around to monitor his business, the agent has incentive to cheat, or misuse funds. For example, in the early days, when a merchant sends his assistant to a different village, he has no way to confirm if the assistant is being honest or pocketing the profits himself. This way, the assistant has more information than the merchant, since he is physically present with the funds and the goods, while the merchant in still at their home village. In this narrative, the protagonist is the principal, and the dishonest agent is the antagonist. These characters have motivations, usually to maximize profit, and face conflict when profits are hindered.

Events take place in economic theories all the time.  The ‘events’ can be endogenous changes, meaning that they usually happen as a direct consequence of the character’s actions in an economic model [7]. An endogenous change could arise from the fact that a goods seller chooses to increase his price of goods because there is a great demand for his goods. This is often demarcated by a movement of a point along the supply curve in a demand-supply curve. On the other hand, an exogenous change is a change that arises from variables that are not in the model. For instance, in a demand-supply graph for the price of labour (worker’s wages), an unexpected change in oil prices, or shocks, could indirectly increase the cost of operations for a company, and force them to suppress wages. This is shown with a shift of the whole supply curve to the left in the demand-supply graph (see appendix 1). Thus, the events have a temporal and consequential flow, like a plot.

If one were to use the three-constituent plot structure as a point of reference, the events in an economic theory usually have a rising action and a falling action, sometimes quite literally on the graph. Denouement, or the end point, in all economics narratives is usually a state of equilibrium [8]. On a demand supply graph, a state of equilibrium is reached only after price and quantity have adjusted to the shocks or other events. In a very minimal plot, there is a rising action (a shift of the curve upwards due to a negative oil price shock), a conflict or climax (the state of non-equilibrium from having a misallocation of resources, since the price of wages have not adjusted for this change in price of oil) and a falling action (when the price of wages fall to accommodate this change in oil prices). Each event leads logically to the next, until it reaches the equilibrium, or when the economy reaches a stable allocation of resources. In a macro-economy, equilibrium can be reflected as peace and stability, perhaps after the country has survived economic turmoil either because of a natural disaster or political incompetence. The equilibrium is the idealistic ending of a theory as in a narrative. Economists are never happy without the closure of an equilibrium, and all theories are plotted towards the equilibrium.

While the misallocation is often a source of conflict in economics, there is another source of conflict that is more concerned with micro-economic agents; uncertainty, which deals with the fact that we can never be sure of the probability of an event occurring. An economic concept that deals with uncertainty is game theory, whereby a rational individual has to make a choice between all known possible outcomes [9]. In this framework, an individual maps out all his possible actions; all his possible endings (see appendix 2). When he chooses one action, he has to completely forgo the other possible actions and hence the other possible outcomes (opportunity cost). The motivation of the character is his happiness, or as economists like to say, utility. Models assume that human beings are rational creatures that try to maximize their utility, and this resembles the basic motivations of most characters in a narrative. Utility hence becomes a measurement of how much an individual is willing to pay, or forsake, for his goal [10], and this can be interpreted as a plot device for this individual’s story. An individual calculates the risks that any action of his will bring, makes his decision, and advances the plot, hoping to reach his stable equilibrium in the end.

Who, then, narrates the story for an economic theory? The economist, as the author of his theory, assumes the role of a third person narrator, because he speaks from outside the setting in his story, telling us the characters’ motivations via exposition through economic language (utility, profits), and showing us how a series of events leads to an outcome that prove his theory or framework right. There have been multiple occurrences of economists using narratives to make their theories more compelling, the most famous (or infamous) being Karl Marx, who turns his communist theory into a rhetoric tale in The Communist Manifesto [11]. In this tale, the setting is clearly established (the post-industrial dystopia of Europe). The characters are the bourgeoisie (owners of capital, the antagonists) and the proletariat (the labourers, the oppressed, and the protagonists). Marx clearly sympathizes with the labourers, and outlines a series of events that will lead to the disintegration of the two classes: the bourgeoisie suppress wages until they cannot be suppressed => the proletariat are forced to overthrow the bourgeoisie because of the unliveable financial conditions => there are no longer any bourgeoisie and everyone lives as individuals of an equal class. Each event leads consequentially to the other, and Marx addresses the reader (he passed this manifesto as a flyer to people on the streets) in second person, imperatively telling him to rise against the oppressor, inspiring him with the promise of a free tomorrow (denouement). The theory, thus becomes a vehicle of communication between the economist and the audience. We now know of course, that the concept could not reach an equilibrium, and that the theory failed in practice, even drawing the ire of author George Orwell in Animal Farm, but this illustration shows the rhetoric nature of economic theories, as opposed to rules set in stone.


Therefore, I am certain that narrative is a huge component of economic principles. I have clearly outlined how an economic theory is structured like a narrative, and how it incorporates the same elements such as characters, settings, events, plots and endings to tell a story. The purpose of this story is to show how an economist’s theory is executed, and the ending is always a point of equilibrium. This brings us back to the beginning on why economists are always arguing. They are in essence, challenging the endings, or equilibrium, because they have a different narrative. Different economists, have different notions of equilibriums in mind because they have different settings [12]. Maybe their models accounts for an exogenous shock that the former economist failed to see, because his setting was limited. All economists tell stories with their graphs, some go further and tell it through literal narrations to make their arguments more compelling. The human element has always been ingrained in the science of economics, despite the rigidity of mathematical laws in calculations, and as long as there is a human element, there will always be a narrative element.


  1. An exogenous shift in supply curve on demand-supply graph.


2. An example of a game theory tree that maps out an individual’s actions



  1. Joan Robinson, “Contributions to Modern Economics”, Academic Press, 1978
  2. Paul A. Samuelson & William D. Nordhaus. “Economics (18th Ed)”,  Irwin/McGraw-Hill, 2004
  3. Ferdinand de Saussure, “Courses in General Linguistics”, Duckworth, 1983
  4. Seymour Chatman, “Story and Discourse”, Cornell University Press. 1978
  5. Donald N. McCloskey, “The Rhetoric of Economics”, American Economic Association, 1983
  6. Steven N. Durlauf, “ The New Palgrave Dictionary of Economics (2nd Ed)”, Palgrave Macmillan, 2008
  7. Jeffrey M. Wooldridge, “Introductory Econometrics (5th Ed)”, South-Western College Publications, 2012
  8. Donald N. McCloskey, “If You’re So Smart: The Narrative of Economic Expertise”, The University of Chicago Press, 1990
  9. Roger B. Myerson, “Game Theory: Analysis of Conflict”, Harvard University Press, 1991
  10. Alfred Marshall, “Principles of Economics. An introductory volume (8th ed.)”, Macmillan, 1920
  11. Karl Marx, Selected Writings, EBSCO Publishing, 1994
  12. McCloskey, “If You’re So Smart”, 1990



I wrote this paper for my GEK1049 Narrative module. Posting it here on the suggestion of a friend who read it. Got an A, a bit higher than what I thought I’d get. It’s dry, and felt weird for me to write since it’s effectively talking about how fictional my major is. Three years devoted to fiction. Ha.


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