Democratic Underground - The Economics of Harry Potter

All the commentary that follows is my own--Demeter

When one goes to examine the superstructure of the Potterverse (short for Potter Universe, I believe), one must first deal with two facts:

the point of view of the narrative is an eleven-year-old boy who up until the opening of the story is raised in our Muggle world (Muggle meaning non-magical, and being the PC term for the magically ungifted. Mudblood is the pejorative term for a wizard sport born of Muggle parentage.)
and, JK Rowling, who is very gifted and creative, is either not particularly interested in creating a self-contained, functioning alternate world, or not sufficiently sophisticated to deal with the task.

I suspect both: consistency is not Rowling's forte, nor is her mind working as an "engineer's mind" might. She drew upon myths, legends, fairy tales, all the story-telling creativity of past generations; she didn't even cross over to the "technology" side in the Muggle world, let alone the Wizard's World. Her wizard-created technology is either completely deus-ex-machina or a ripoff of a Muggle artifact.

So too with Wizarding economics. To all appearances, the Wizarding world never left the gold standard. Currency consists of gold Galleons, silver Sickles, and bronze Knuts. The conversion is: 1 Galleon = 17 Sickles = 493 Knuts. Not only have the wizards never moved to the British pound, they evidently never discovered the ease of the decimal system, either. It may be that money doesn't play much of a role in their society, although Potter's best friends, the Weasley family, are constantly obsessed with the poverty they endure with 7 growing children in the family...it is also not clear whether the Galleon is merely a British Isles currency, or a universal wizarding currency.

The coins are produced by goblins, another entirely different magical species of being with lingering enmity towards the wizarding population, due to many centuries of bloody conflict between them and the refusal of the wizards to sell wands to goblins.

The Galleon has numerals around the outside edge which is a serial number referring to the Goblin who cast the coin. It is unknown whether the Sickle or Knut also have these numbers, but it seems likely.

How goblins ended up in charge of the currency and running the banking system is not clear. Despite 7 years of History courses in the Hogwarts curriculum, Harry Potter has never cracked the books nor retained one word of the lectures, and so the reader is also clueless. It is stated, however, that goblins are miners and metal-crafters, hence their affinity to producing swords, jewelry and coins, underground vaults and labyrinths...but what they get for their labors is also not clear.

Magical children born into the Muggle world must exchange their Muggle currency at Gringotts in order to buy school supplies. There is a currency converter available at the Harry Potter Lexicon, the authoritative source of all things magical:

http://www.hp-lexicon.org/wizworld/galleons.html

To quote from the Lexicon on the subject:

Well, even if you can do the math quickly in your head when you need to make change, it's still not easy. The values of the coins don't always seem to make sense. After all, you can buy a large quantity of sweets from the cart on the Hogwarts Express for eleven Sickles, about two-thirds of one Galleon. So is that all that the Weasleys had in their vault? The price of a pile of candy? And with that they bought books and school gear for all those kids? It just doesn't quite work out.

JKR has stated in an interview (CR) that she estimates the value of one Galleon to be "about five pounds," which works out to around US$9.75 (the exchange rate at the time of the interview was US$7.33). In the introduction to both QA and FB, US$250-million is stated to be the equivelent of 34 million Galleons. That also works out to a value of £5 to the Galleon, at the exchange rate of the time. The price listed on the back of the books, however, is not correct, since US$3.99 would equal less than half a British pound, or 8 sickles and 15 knuts. The book instead incorrectly lists US$3.99 as being equal to 14 sickles and 3 knuts. (Unfortunately, CNN.com uses this incorrect value for their WEB LINKKnuts-to-dollars converter.)

coins image from film This gives us approximate values as follows:

1 bronze Knut = £0.01 (US about 2 cents)

1 silver Sickle = £0.29 (about US$0.57)

1 Galleon = £5.00 (more or less US$9.75)

These rates vary as the exchange rate fluctuates - see the Wizarding World Currency Converter for the current rate.

There is apparently some kind of foreign wizard money that consists of gold coins the size of hubcaps (if Mr. Roberts wasn't simply giving an exaggerated description of Galleons) (GF7).

While wizard money seems to be made from actual precious metals, it also seems to have some sort of magic in it which makes it lighter than normal. Harry handled a bag containing one thousand Galleons-- the prize money from the Triwizard Tournament--as if it were nothing, but a thousand coins made out of gold, even fairly small ones, would weigh a considerable amount indeed, far more than anyone would be able to toss around in a cloth bag. This magic is perhaps an effect similar to Wizard Space.

http://www.hp-lexicon.org/wizworld/money.html

I suspect the goblin/currency gimmick is a nod to the legendary Gnomes of Zurich...

Gnomes of Zürich is a disparaging term for Swiss bankers. Swiss bankers are popularly associated with extremely secretive policies, while gnomes in fairy tales live underground, in secret, counting their riches. Zürich is the commercial center of Switzerland.

The term was coined by the British Labour Party politician Harold Wilson, then Shadow Chancellor, in 1956 when he accused Swiss bankers of pushing the pound down on the foreign exchange markets by speculation.

The relevant portion of Wilson's speech in the House of Commons ran as follows:

Traders and financiers all over the world had listened to the Chancellor. He had said that if he could not stop wage claims the country was facing disaster. Rightly or wrongly, these people believed the Chancellor. On September 5th, when the T.U.C. unanimously rejected wage restraint, it was the end of an era, and all the financiers, all the little gnomes in Zürich and other financial centres, had begun to make their dispensations in regard to sterling.

Wikipedia

Robert Lynn Asprin, a Libertarian-leaning science fiction writer best known for his humorous MythAdventures and Phule's Company series, made similar references to this term....

All I can add is: the magical folk should get down on their knees in gratitude that they don't have the 4 Stooges: Geithner, Bernanke, Summers and Rubin, in charge of their economics.

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