The economics of Harry Potter

By Ashna Ranade

Have you heard of the phrase “Voldemort to the Economy”?

Lord Voldemort is so loathed in the wizarding world that simply mentioning his name is deemed deadly in J. K. Rowling’s Harry Potter series. As a result, practically every witch or wizard refers to Lord Voldemort by aliases like You-Know-Who. The term “cause” is almost as scary to economists as the name Voldemort. This Article examines the muggle (human) equivalent of Voldemort to the economy, while including calculations and terms from the revolutionary Harry Potter Series. 

Despite the difficulty of proving causation, economists are attracted by the task since it may be used to infer policy implications and direct public initiatives. Economists have been given tools to discover the unintended consequences, and randomised control trials are a common technique, especially in development economics. All of the techniques, on the other hand, must be based on some untestable assumptions. In a wizarding world, there are no assumptions. Researchers have tried drawing parallels between the policies and economic proceedings of the wizarding world and the muggle world only to find that the wizarding world might lack severity in response to public economics and policy. Does magic really make them rich? 

While wizards in Harry Potter could perhaps conjure money out of thin air, they carry out their trade and exchange in gold Galleons, silver Sickles, and bronze Knuts, which are supplemented by an all-powerful, incredibly effective gargoyle Gringotts bank that is anything but a Muggle reserve bank. As a result, Harry Potter’s world runs on a system akin to the gold standard, which is described as “a monetary system in which the fundamental unit of money is determined by a specified quantity of gold.” Governments, or in this case, Gringotts, are encouraged to act responsibly by the gold standard. Fiat money, on the other hand, has no intrinsic value and is not backed by actual reserves, putting it at danger of becoming worthless in a hyperinflationary environment. If the price of gold in one Galleon is higher than the price of silver necessary to create a Galleon’s worth of Sickles, the arbitrage opportunity permits the aspiring investor to profit from both markets. It would presume that there would be an acute severe increase in the supply of gold and demand for silver in the muggle economy, eventually settling at an equilibrium where the ratio of gold to silver prices is 1 to 17 (1 galleon= 17 sickles) and the liquidity incentive would be lost. Gold is vulnerable to exploitation due to its scarcity internationally, and as a result, it is a somewhat artificial indicator of a currency’s worth.

Many currencies, for example, were on the gold standard in 1914, and each country was required to have a certain amount of gold on hand as a reserve. As a result, countries were frequently cash-strapped, unable to expand their money supply in times of need. In other words, if the wizarding world were to experience a financial crisis, Gringotts would most likely be unable to get further Galleons, resulting in a money scarcity.

Slavery is morally objectionable, yet has been practised for terms of economic efficiency in the wizarding world. This is especially evident in Harry Potter, as captive house-elves provide excellent living conditions for their owners, such as the Malfoys, who have a comparatively low opportunity cost of employing a house-elf. Many wizarding households would struggle to complete simple muggle activities, including shopping at a muggle supermarket, if house-elves did not exist. There would be a scarcity of wizards ready to serve as househelps. Who wants to do mundane work when you have the ability to do magic? When it comes to needless spending in the Wizarding World, certain members of the community volunteer a lot. Janitors, chefs, and even housekeeping staff are all present, which is odd given that much physical work may be mechanised with a wave of a wand. These may be jobs for Squibs or non-magic persons born into a wizarding family, but they’re essentially the disabled in the Wizarding World, so why offer them hard physical labour at all if they’re like that? They are compensated in any case, but it seems inefficient and even harmful to have them perform tasks that wizards and witches can easily automate. Squibs can also very easily and readily facilitate financial fraud considering the complexity of the Wizarding currency as compared to muggles. 

Competition is absent in many areas, not just the financial sector. The wizarding economy’s industries are all extremely concentrated. Excessive regulation and bureaucracy might be one explanation for this. Percy Weasley, a government official, seeks to impose a uniform thickness for cauldron bottoms in The Goblet of Fire, rather than allowing consumers to choose for themselves. In the wizarding realm, it appears that there is no inheritance tax. In reality, there is no indication that the wizarding society has a formal taxation structure. There must be some kind of taxation, because where there is a government, there must be taxes.

Whatever tax structure is in place, it will not be enough to prevent the affluent from having total control. Despite his reputation as a death eater, Lucius Malfoy enjoys regular and unrestricted access to the Minister of Magic. Lucius is frequently shown influencing public policy and using the Minister as his private puppet all across the sequence.

Gringotts has so far avoided an economic catastrophe (although the Dragon came dangerously near!) In this fully competitive market, civilization thrives, dealing with literal gold money. Witches and wizards, on the other hand, have to make trade-offs and are sometimes compelled to think like logical decision-makers. The capacity to cast magic spells, whether wealthy or impoverished, is no guarantee of financial security, and they, too, must confront the economic realities of everyday life. However, the more fundamental question to be addressed would be to examine if the wizarding world really needs an economy in the first place. Well, if money cannot buy happiness, magic surely should 🙂

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