What is the Economic system of the Potterverse?

Question

The annual student intake of Hogwarts seems about 100. Since in book 7 Hogwarts is declared mandatory for all children, this means that the total magical population of Britain cannot be much more than 10,000.

How do these people make a living?

All jobs mentioned in the books are non-productive occupations (government, stores, sports &c) - not farmers or engineers. There are exceptions - makers of wands/robes/broomsticks - but where do they get the raw materials from?

Who and how "creates goods" in the wizarding world?

Note that if you say "wizards exchange their gold for Muggle money and buy stuff from Muggles (through intermediaries, if necessary)" then you would have to explain where they get their gold: they would either have to mine it, or produce something of value to the Muggles (in which case the separate financial system of galleons/sickles/knuts does not make sense).

PS. A simple issue of maintaining a steam locomotive for Hogwarts express is pretty much insurmountable for 10k people - without Magic, that is. So, I can imagine that the skilled tradesmen can transfigure dirt into raw materials for their trade - except for food, which "is the first of the five Principal Exceptions to Gamp's Law of Elemental Transfiguration".

Answer 1

TL;DR:

To misquote an apocryphal Tolkien-derived work "The last Ring-Bearer": "It is rather hard to analyze the reign of the first Princes of Ithilien, Faramir and Éowyn, in political or economical terms – it appears that they had neither politics nor economics over there, but only a never-ending romantic ballad".

In other words, Potterverse has no economic system we can coherently and logically deduce or find, because Rowling didn't put one in.

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In-universe details:

You have to remember that Potterverse's Wizarding world is a weird combination of magic (meaning, a lot of their basic needs are taken care of "for free", except for food - basically, they are closer to Star Trek's Post-scarcity economy than to anything else), and late medieval/early modern Muggle society, which is when they separated from Muggles - culminating in full separation under statutes of secrecy in 1689.

As such, there seems to be a somewhat late feudal/early bourgeois trade system (you have trade shops, such as Madame Malkin's clothing, or Ollivander's Wands, or Zonko's, or various inns/taverns). You have a primitive bank (Goblin) that doesn't appear to do anything aside from holding money and valuables and facilitating ForEx trade (e.g. muggle money exchange). You have a very large government that pays salaries and seems to employ a large proportion of wizarding population.

There doesn't appear to be anything like a capitalist system (rich families are rich because they inherit old money, except for a rare and likely unique case of a startup in the form of Weasley's Wizarding Wheezes with Harry as angel investor). There's no mention of investments aside from that, or from capital accumulation, etc...

However, we ALSO don't see a proper feudal system, with no vassals being granted land by their liege lords.

As a matter of fact, aside from Weasley's garden and Hagrid growing some produce in Hogwarts, we don't see ANY agriculture... despite food being the one known exception from being magically created out of thin air.

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Out of universe, this is explained by 2 things:

• These are magic books for child audiences. What do 11-year-olds care about economics? Most boring subject possible.

• JKR isn't exactly an economics maven. She went from a welfare case to multimillionaire practicably overnight, and as far as I'm aware was a liberal arts major/worker before that, and based on some of her non-Potter writings, has a very poor understanding of what makes economy tick.

Answer 2

Although we don't see a great deal of wealth creation in the Potterverse (e.g. as opposed to wealth redistribution) there are a number of primary industries mentioned;

Mining

Nifflers (treasure hunting animals) are found in wizard mines. This strongly suggests that some mining is carries out in magical areas:

‘These’re Nifflers,’ said Hagrid, when the class had gathered around. ‘Yeh find ’em down mines mostly. They like sparkly stuff … there yeh go, look.’

One of the Nifflers had suddenly leapt up and attempted to bite Pansy Parkinson’s watch off her wrist. She shrieked and jumped backwards.

‘Useful little treasure detectors,’ said Hagrid happily. ‘Thought we’d have some fun with ’em today. See over there?’ _{^{Harry Potter and the Goblet of Fire}}

Farming (Aquaculture)

‘Fancy a flutter on the match, Arthur?’ he said eagerly, jingling what seemed to be a large amount of gold in the pockets of his yellow and black robes. ‘I’ve already got Roddy Pontner betting me Bulgaria will score first – I offered him nice odds, considering Ireland’s front three are the strongest I’ve seen in years – and little Agatha Timms has put up half shares in her eel farm on a week-long match.’ _{^{Harry Potter and the Goblet of Fire}}

Farming (Livestock)

Magical farms are blighted by a creature known as the Nogtail:

The longer the Nogtail is left undetected and the bigger it grows, the longer the blight on the farm into which it has entered. The Nogtail is exceptionally fast and difficult to catch, though if chased beyond the boundaries of a farm by a pure white dog, it will never return. The Department for the Regulation and Control of Magical Creatures (Pest Sub-Division) keeps a dozen albino bloodhounds for this purpose. _{^{FANTASTIC BEASTS and where to find them}}

Insect Farming

Dried Billywig stings are used in several potions and are believed to be a component in the popular sweet Fizzing Whizbees. _{^{FANTASTIC BEASTS and where to find them}}

Farming (Ornamental/Arable)

Hagrid famously keeps a pumpkin patch in the grounds of Hogwarts. Although these seem to be used exclusively by the school, it's possible that some were exported to (for example) Hogsmeade or beyond for sale

Answer 3

Here are the questions and answers relating to the economics of Potterverse.

How Important is Money in the Wizarding World?

Pureferret : In essence, your only expense is Food and Clothing (and you can make do on the later case), also there is, to my knowledge no such thing as a mortgage in the wizarding world....

How Does the Ministry of Magic Obtain their Funding?

DVK: There is never any mention of how they come by the money. Neither in books nor in any JKR interviews. I searched for "money", "funding", "tax/taxes/taxed", "ministry" and "government". Zero relevant hits.

Does Gringott's Wizarding Bank pay interest on deposits?

Slytherincess: I do not see evidence in canon that formal interest is either distributed or collected within the Wizarding world.

What exactly do the Malfoys do for a living?

The result is that they are one of the richest wizarding families in Britain, and it has been rumoured for many years (though never proven) that over the centuries the family has dabbled successfully in Muggle currency and assets. Over hundreds of years, they have managed to add to their lands in Wiltshire by annexing those of neighbouring Muggles, and the favour they curried with royalty added Muggle treasures and works of art to an ever-expanding collection. - Pottermore

The short end of it is, the Potterverse economy seems to function on some principle we don't understand (magic?). This maybe be because Rowling is both political and terrible with numbers.

Slytherincess: So for her, the question of what it takes to make a normal economy function (and especially, how government funding is obtained) is utterly unimportant and un-interesting.

Answer 4

The fanfic Harry Potter and the Methods of Rationality has huge fun exploring wizarding monetary policy https://www.fanfiction.net/s/5782108/4/Harry-Potter-and-the-Methods-of-Rationality

Heaps of gold Galleons. Stacks of silver Sickles. Piles of bronze Knuts.

Harry stood there, and stared with his mouth open at the family vault. He had so many questions he didn't know where to start.

"Are these coins the pure metal?" Harry said finally.

"What?" hissed the goblin Griphook, who was waiting near the door. "Are you questioning the integrity of Gringotts, Mr. Potter-Evans-Verres?"

"No," said Harry absently, "not at all, sorry if that came out wrong, sir. I just have no idea at all how your financial system works. I'm asking if Galleons in general are made of pure gold."

"Of course," said Griphook.

"And can anyone coin them, or are they issued by a monopoly that thereby collects seigniorage?"

"What?" said Professor McGonagall.

Griphook grinned, showing sharp teeth. "Only a fool would trust any but goblin coin!"

"In other words," Harry said, "the coins aren't supposed to be worth any more than the metal making them up?"

Griphook stared at Harry. Professor McGonagall looked bemused.

"I mean, suppose I came in here with a ton of silver. Could I get a ton of Sickles made from it?"

"For a fee, Mr. Potter-Evans-Verres." The goblin watched him with glittering eyes. "For a certain fee. Where would you find a ton of silver, I wonder?"

"I was speaking hypothetically," Harry said. For now, at any rate. "So... how much would you charge in fees, as a fraction of the whole weight?"

Griphook's eyes were intent. "I would have to consult my superiors..."

"Give me a wild guess. I won't hold Gringotts to it."

"A twentieth part of the metal would well pay for the coining."

Harry nodded. "Thank you very much, Mr. Griphook."

So not only is the wizarding economy almost completely decoupled from the Muggle economy, no one here has ever heard of arbitrage. The larger Muggle economy had a fluctuating trading range of gold to silver, so every time the Muggle gold-to-silver ratio got more than 5% away from the weight of seventeen Sickles to one Galleon, either gold or silver should have drained from the wizarding economy until it became impossible to maintain the exchange rate. Bring in a ton of silver, change to Sickles (and pay 5%), change the Sickles for Galleons, take the gold to the Muggle world, exchange it for more silver than you started with, and repeat.

Wasn't the Muggle gold to silver ratio somewhere around fifty to one? Harry didn't think it was seventeen, anyway. And it looked like the silver coins were actually smaller than the gold coins.

Then again, Harry was standing in a bank that literally stored your money in vaults full of gold coins guarded by dragons, where you had to go in and take coins out of your vault whenever you wanted to spend money. The finer points of arbitraging away market inefficiencies might well be lost on them. He'd been tempted to make snide remarks about the crudity of their financial system...

But the sad thing is, their way is probably better.

Answer 5

TL;DR:

1. Harry lives in a filter bubble. Not mentioning productive occupations in the story doesn't imply they're non-existent
2. Wizards use magic and magical creatures to be much more effective and therefore the ratio of people working in productive occupations can be smaller.

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All jobs mentioned in the books are non-productive occupations…

That is true, but we as readers have a strong bias. We watch the life of a child growing in a Muggle family. Most of the working adults are people he meets in school. Therefore they're mainly teachers.

I think it is fair to assume that manual work, often wouldn't fit the nature of the story as well as aurors, teachers, or politicians.

I live in a 1M city and I rarely meet someone creating his own products. If I do, it is mostly someone I do not know, I do not talk to and mainly, I almost don't worry about (I meet them for example on a trip to the countryside I see e.g. lumberjacks, fishermen, tractor driver etc.).

If someone would write a book about my (muggle) life, they probably wouldn't mention any productive job either, because they're not important for my story.

Also, J. K. Rowling lives in Edinburg and likely is not that used to meet manual workers that much herself.

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The ratio of people working in productive jobs is maybe (probably) smaller than for muggles, but the efficiency is much higher.

We know from other answers, that there are some productive jobs (Valorum mentioned at least farming and mining).
It is not that big problem, that there are not that many people, because thanks to the magic, their work can be much more productive.
To cut down the tree you can use one simple spell, to move it to your track another one. This way you can chop down the forest in two hours.

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…total magical population of Britain cannot be much more than 10,000.

Also true. But wizarding word is not only wizards but also magical creatures.
We know that wizards use some of them (house-elves, nifflers) to do their jobs for them. It seems very likely, that also some of the product-creating jobs are handled by magical creatures. House-elves typically.

Answer 6

Really, all economics come down to allocations of human time. The financial system and economy in general are just the systems we use to communicate to each other how we each need to allocate our time. There's never actually been more than one "economic system", there's only been the one.

As the economist Julian Lincoln Simon, demonstrated, their are no "natural" resources or materials save the ambient oxygen in the air. All other resources have to be obtained through human time and effort. The "value" of anything is the amount of human time required to produce the resource and deliver to where it will be used or consumed.

Prices are signals we send to other human beings telling them how to allocate their time and effort. If we pay more for something, we signal, "allocate more of your time to making that" if we pay less, we signal, "spend your time making something else."

From an economic perspective, it really doesn't matter whether that effort takes the form of some material action or the form of casting a spell. The economic value of the resulting result is still a measure of the human time and effort.

If you have a magical world in which people can produce anything out of thin air with a spell, then the value of any particular good will be determines by: 1) the time it takes an individual to develop the magical skills to cast learn or invent the spell, 2) the time it takes to actually learn or invent the spell, 3) the time it takes a person to actually cast the spell, 4) the time it takes to transfer the result to another person.

Since all economies are about human time, regardless of the details of how that time is spent, the economics of the Harry Potter universe would work the exact same way ours works as long as they had to expend time and effort of some kind to whisk up goods and services by magic.

The "post scarcity" economy is a myth because the finite amount of human time is always going to be the "scarce" commodity. Heck, from the perspective of the by pre-industrial world, we today in the industrialize world live in a post scarcity economy because we don't spend 80%+ of our entire economic effort just growing food for subsistence. Our material wealth would look absolutely magical from someone from the pre-industrial era. The couldn't understand how we could survive, much less prosper unimaginably, with only 4% of our population devoted to growing food.

A Star Trek-esc technology level would look equally magical to us but they would still have the scarcity of human time and thus an economic system to allocate that time. Likewise, a literally magical world would still face the scarcity of human time and would still have an economic system based on price systems that convey to each magician how they should best allocate their time.

Answer 7

To start with i believe that your assumption of Hogwarts only having 100 students is a little off. In Harry's grade he has 5 guys in his room and 4-5 girls in the girls room just in Gryffindor. Which leads you to believe that every other house gets roughly the same amount of students each year which makes enrollment somewhere between 35-50. That means there are between 250-350 students at Hogwarts in a given year. That bumps up your total magic population up to 25,000-35,000 based on your calculations. This then leads me to believe England's Witch and Wizard population is probably closer to 50,000 people based on the fact that wizards live much longer then muggles as shown that multiple wizards alive are 100+ years old. Another point on population comes from the World Cup, there were hundreds of thousands of people there, and since it was based in England you can assume A large majority of English showed up as is common with say... the soccer world cup where the stadium holds 100-200k people most of which are Brazilian this year.

On to economics. England itself is not a very self-efficient country when it comes to food, with only 58-60% of there food produced locally. This may translate into the wizarding world as well in the fact That the wizards tend to either live in muggle neighborhoods, wizarding neighborhoods, Or secluded areas across Briton, marshes, hills, valleys. As others have said Wizards cannot create food with magic, That doesn't mean they cant enhance food that is growing. Mrs. Weasley in her garden could have enlarged her produce, such as Hagrid did with his Pumpkins, except that she would not have been magically limited as Hagrid was. You also could have (not verified) hundreds of house elves growing food as well. Hogwarts employees hundreds of elves as we find out in book 4, and so it stands to reason there are other large populations of house elves elsewhere some of which could be plantation farming. Another issue wizards don't have is transportation of goods, as well as keeping of goods. In most Fantasy series with invasive magic like the world of harry potter it is no issue to keep food fresh indefinitely through the use of magic. I would also say wizards either had "grocery stores" or they shopped at muggle stores.

Moving onto Where they got their gold. I believe its very reasonable to assume the goblins actually mine or mined for metals. In their history's goblins are master metal workers which would give a lot of credence to the idea of them mining themselves. (Gringots is basically an abandoned mine anyway...) You can also assume that gold galleons where most likely 100% gold And while there were probably laws about making your own coins typically with gold coins weight is the end determinate on value. You could see they did have counterfeiting problems since people would buy using leprechaun gold which would disappear in a matter of hours. I imagine shops had some magical till or way to determine if coins were in fact real or not. If we can assume goblins are mining for find metals we can also assume that they in the process are gathering other metals and ores as well. Other goods in the world such as unicorn horn, beetle eyes... ect appear to have been gathered both professionally, and through individual contributors. People like Hagrid grew, raised, and had access to different magical creatures and materials he likely provided things such as newt eyes to the school. Other people like Professor slughorn actively sought after rare magical "trade goods" and if found would personally procure and take to an apothecary or other shop and sell. It would be very lucrative for a which or wizard have taking herbology and care of magical creatures to then as a career find or grow different trade goods needed in all types of magical things. If there is money in it you can bet someone is doing it.

Moving on to jobs. So we have teachers, Governement (including lawyers, police, fbi, politicians, social workers, civil work) shops selling goods and finished products (which they witch or wizard probably created themselves as in medieval culture the smith sold the stuff he made). You have a lucrative business Getting trade goods which leads to the assumption that it was being done, as well as examples of it on the small scale. Bankers, authors, news reporters. Essentially we have everything that a society needs Minus the actually Proof that there are farmers we can assume that if they were not importing or purchasing muggle food then in fact there were also farmers. At the end of the day you have to think like this if we only have 10k people, but their all witches and wizards, how many farmers do you actually need. With farm tools in the Midwest 1 farmer with tractors can farm 100's of acre of land that's probably enough grain for thousands of people. 1 wizard can probably do dam near as good if not better so you don't need a large population to accomplish the same things that we muggles do.

Answer 8

Enough wizards (like the Malfoys) participate in the broader (muggle) economy to get the economic ball rolling. Also, magic allows for both a higher standard of living and a functioning of say, Hogwarts, at a lower income/cash level.