History and Narrative
Historians have always displayed an appreciation for narratives. However, as
historian Ramsay MacMullen noted in Feelings in History: Ancient and Modern
(2003), a deep understanding of history requires inferring what was on the minds
of the very people who made history—that is, what their narratives were. He
does not literally stress the concept of narratives; he has told me that he would
prefer a word conveying “stimulus to some emotional response, and there is no
such word.” If we want to understand people’s actions, he argues, we need to
study the “terms and images that energize.” For example, he asserts that it is
impossible to understand why the American Civil War was fought unless we
engage deeply with vividly told stories, such as the 1837 news story reporting an
angry mob’s shooting of the abolitionist newspaper editor E. P. Lovejoy in
Alton, Illinois, in 1837. This evocative story whipped antislavery sentiment in
the North to a feverish fury that persisted for years. Academic discussion
regarding the extent to which the Civil War was fought over slavery cannot be
conclusive unless we take into account the emotional power of relevant
narratives.
The late Douglass North, economic historian and Nobel laureate, echoes
MacMullen’s conviction in his 2005 book, Understanding the Process of
Economic Change, which emphasizes the importance of human intentionality,
essentially in the form of narratives, in the development of economic
institutions.

Insights from Sociology, Anthropology, Psychology, Marketing,
Psychoanalysis, and Religious Studies
In the social sciences, the last half century saw the blossoming of schools of
thought that emphasize the study of popular narratives. Such study has been
termed narrative psychology,2 storytelling sociology,3 psychoanalysis of
narrative,4 narrative approaches to religious studies,5 narrative criminology,6
folklore studies,7 and word-of-mouth marketing,8 among other terms. The
overriding theme is that most people have little or nothing to say if you ask them
to explain their objectives or philosophy of life, but they brighten at the
opportunity to tell personal stories, which then reveal their values.9 For example,
in interviewing inmates at a prison, we find that the interviewee tends to respond
well when asked to tell stories about other inmates, and these stories tend to
convey a sense not of amorality but of altered morality.
Another example: anthropologist William M. O’Barr and economist John M.
Conley interviewed investment managers about their business and found a
widespread tendency for employees at the firm to tell a story about the founding
of their firm and about its values.10 The story has some common features across
firms, and it is akin to the creation myths that, as anthropologists have noted,
primitive tribes tell about their own origin. The story tends to center on one man
(rarely a woman) who showed exceptional foresight or courage in founding the
tribe—or, in this case, the firm. The narrative tends to revert to the founding-
father story to justify the many stories about the firm as it exists today.

Literary Studies and Narrative
Thinking about economic narratives brings economists to a corner of the
university with which they are often unfamiliar: the literature department. Some
literary theorists, inspired in part by psychoanalysis, the archetypes of Carl
Jung11 and the phantasies of Melanie Klein,12 have found that certain basic story
structures are repeated constantly, though the names and circumstances change
from story to story, suggesting that the human brain may have built-in receptors
for certain stories. John G. Cawelti (1976) classifies what he calls “formula
stories” with names like “the hard-boiled detective story” or the “gothic
romance.” Vladimir Propp (1984) found thirty-one “functions” present in all folk
stories, with abstract names like “violation of interdiction” and “villainy and
lack.” According to Ronald B. Tobias (1999), in all of fiction there are only
twenty master plots: “quest, adventure, pursuit, rescue, escape, revenge, the
riddle, 
rivalry, 
underdog, 
temptation, 
metamorphosis, 
transformation,
maturation, love, forbidden love, sacrifice, discovery, wretched excess,
ascension, and descension.” Christopher Booker (2004) argues that there are
only seven basic plots: “overcoming the monster, rags to riches, the quest,
voyage and return, comedy, tragedy, and rebirth.”
According to literary theorist Mary Klages (2006), structuralist literary theory
considers such efforts to list all basic stories as “overly reductive and
dehumanizing.”13 Although she dismisses other scholars’ lists of basic plots, she
asserts, “Structuralists believe that the mechanisms which organize units and
rules into meaningful systems come from the human mind itself.”14 Peter Brooks
(1992) says narratology should be concerned with “how narratives work on us,
as readers, to create models of understanding, and why we need and want such
shaping orders.”15 Well-structured narratives, Brooks argues, “animate the sense-
making process” and fulfill a “passion for meaning,”16 and the study of
narratives naturally leads to psychoanalysis.
Russian literature scholar Gary Saul Morson recently collaborated with
economist Morton Schapiro in Cents and Sensibility (2017), in which they argue
that a better appreciation of great novels—which bring us close to the essence of
human experience—would help improve the modeling of economic life.