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Potterian Economics*
Avichai Snir
Department of Banking and Finance
Netanya Academic College
Netanya 42365, ISRAEL
[email protected]
Tel: + 972-3-736-0835
Fax: + 972-3-535-3180
[email protected]
Daniel Levy**
Department of Economics
Bar-Ilan University
Ramat Gan 5290002, ISRAEL
Department of Economics
Emory University
Atlanta, GA 30322, USA
Rimini Center for Economic Analysis
Rimini, ITALY
Tel: + 972-3-531-8331
Fax: + 972-3-535-3180
[email protected]
JEL Codes: A13, A14, D72, D73, H00, H11, P16, P48, Z11, Z13
Key Words: Harry Potter, Political Economy, Social Organization of Economic Activity,
Literature, Folk Economics, Popular Opinion, Economic Model
Last Revision: July 10, 2013
* We thank the participants of the July 2006 Silvaplana workshop on political economy in Silvaplana, Switzerland, and the
January 2012 American Economic Association annual conference in Chicago, IL, for comments. We also thank Anat
Alexandron, Sima Amram, Bob Barsky, Yoram Bauman, Mark Bergen, Sabrina Boewe, Helen Casey, Raphael Franck,
Danielle Gurevitch, Miriam Krausz, Frank Lechner, Steven Levitt, Sarit Levy, Pierre-Guillaum Meon, Shmuel Nitzan,
Chryssa Papathanassiou, Adi Schnytzer, Ainit Snir, Heinrich Ursprung and the seminar participants at Bar-Ilan University for
comments and suggestions, and Avihai Levy and Eliav Levy for research assistance. All errors are ours.
** Corresponding author.
Potterian Economics
Abstract
The remarkably popular Harry Potter books depict a fantasy world where magic plays a
central role, and thus many events taking place in the story rely heavily on unrealistic magical
powers of the main characters. Another aspect of the world of Harry Potter, although less
noticeable, however, is that it is full of realistic economic ideas. Our goal is to study these
ideas by studying the economic structure of the Harry Potter’s world. We call it Potterian
economics. The starting point of our analysis is the observation that stories and economic
models share some key elements. It is therefore possible, we argue, to study the economic
aspects of the Potterian world, i.e., the structure of the Potterian economy, and compare it to
the existing economic models. We find that in the Potterian economy, gold coins have the
same properties as paper money, consumers have strong brand loyalty, the markets are
dominated by monopolies and oligopolies, the public sector is highly inefficient because of
corruption, underemployment and hidden unemployment, social mobility is limited by
discrimination, and international trade is hampered by government regulations, lack of
investment in linguistic skills and prejudices. We conclude that the Potterian economic model
is not a coherent model that fits neatly one of the standard economic models. Instead, the
model appears to combine ingredients from various economic models.
1
“Literature is nobler than history because it reveals general truths about humans, ‘the type of things that may happen,’ in
contrast to history that only shows what has happened.”
Aristotle (1998, Poetics)
“It is the spectator, and not life, that art really mirrors.”
O. Wilde (Lady Windermere’s Fan, Preface)
“Economists are poets / But don’t know it. Economists are storytellers…” D. McCloskey (The Rhetoric of Economics, p. xiv)
1. Introduction
Formal economic models share some key characteristics with stories and other literary
works (McCloskey, 2000, Thomson, 2001). For example, both stories and models are
composed of a set of actors—characters in stories, decision makers and/or market participants
in economic models—and a set of assumptions—rules in stories, constraints and assumptions
in economic models—that govern the behavior of the actors and determine what they can and
cannot do. In addition, the characters in a story are usually connected together by some initial
relationships like agents in an economic model are linked to each other by initial conditions.
Finally, in both stories and models, the initial relationships develop and change via various
interactions depending the actors’ characteristics and attributes—following the laws of motion
in economic models, and the rules of the game in stories—until they reach the final state at
the conclusion (Rockoff, 1990, Watts, 2002).
In this paper we take the idea of such a comparative analysis one step further by taking
advantage of the commonalities between stories and models to study the economic model that
governs the social and economic activities in the world of Harry Potter. Careful readers of the
Harry Potter book series will notice that Harry Potter and his friends live and operate not only
in a social world, but also in an economic one. Indeed, the world of Harry Potter is full of
economic institutions, economic ideas, and economic observations including incentives,
motives, decisions, behaviors, outcomes, markets, government, monopolies, etc.1,2
It turns out that the economic model imbedded in the Harry Potter books, which we term
the Potterian economic model, is detailed enough to allow a comparison with some standard
economic models. Our goal is to study the Potterian economy by focusing on what Knight
(1965) calls “social organization of economic activities.” We compare the structure and the
characteristics of the Potterian economic model to standard economic models employed in the
1
It turns out that many of these economic elements and ideas are often unnoticed by the readers of the Harry Potter books,
sometimes even by professional economists. For example, when I recently gave a colleague a partial list of these ideas, his
(paraphrased) response was, “Well, now that you say it, you are right, I completely missed all that.”
2
Scholars of other disciplines that have been studying the world of Harry Potter from their discipline’s point of view have
made similar observations. For example, according to Thomas and Snyder (2010, p. vii), the Potterian world is “…complete
with laws and legal institutions…There are laws against certain curses and the underage use of magic, international treaties…
wrongful conviction of Sirius Black, the ever powerful (or inept) Ministry of Magic, numerous crimes…a tribunal that
appears to be a combination of judge and jury…” Similarly, Schwabach (2010), who studies the justice principles that guide
the officials of the Ministry of Magic in Harry Potter series, states: “Harry’s story is a story about law, and about a society
trying to establish a rule of law. There is law in every chapter, and on almost every page… Sometimes the legal questions
hang in the background, while at other times they are the focus of the story. In an unusual move in a fantasy series, the author
shows the readers not only numerous trials, but also statutes, regulations, school rules, and even international agreements.”
2
economics literature to identify differences and similarities. We accomplish that by analyzing
various specific components of the Potterian economy, including the Potterian money,
banking, and monetary system, the Potterian market structure, the Potterian public sector,
income distribution and social mobility, international trade and migration, etc.
Although the Potterian economy is a fictitious economy, we believe its study is worthwhile
for several reasons. First, the author of the Harry Potter series, J.K. Rowling, is not an
economist.3 Therefore, her perception of the economic world as reflected in the structure of
the Potterian economy might be interpreted as an economic model of a representative layman.
As such, the Potterian economic model might be capturing a popular point of view, what
Rubin (2003) calls folk economics, which he defines as “intuitive economics of untrained
people” who care about distribution, but don’t always understand incentives or efficiency. For
example, according to Rubin (2003, p. 157), folk economics “… can explain the beliefs of
naïve individuals regarding matters such as international trade, labor economics, law and
economics, and industrial organization. It is important that voters understand economic
principles. Economists would do a better job of persuading others and of teaching if we paid
explicit attention to folk economics.” Therefore, if Potterian economics is capturing some of
the ideas of folk economics, then understanding these ideas is useful, as Rubin (2003) argues.
Second, the Harry Potter books are not ordinary best-sellers—they are some of the greatest
best-sellers in history. Rowling (2005), for example, sold almost 7 million copies in the US
and over 2 million copies in the UK on just the first weekend after its publication, easily
beating the previous sales record in both countries.4 Moreover, in total more than 450 million
copies of the Harry Potter books have been sold worldwide.5
The success of the Harry Potter series is not limited to English speaking countries. The
books, which have been sold in more than 200 countries, have been translated into 67
different languages, beginning (alphabetically) with Afrikaans, Albanian, and Arabic, all the
way to Vietnamese, Welsh, and Zulu. It has been translated even into Latin. Further, in some
countries (e.g., India and Spain) the books have been translated into several local languages.6
Moreover, the publication of Harry Potter books and their translation into local languages are
not limited to the developed countries. For example, the books have been published in local
languages in such developing countries as Albania, Bulgaria, China, Croatia, Egypt, Georgia,
3
According to J.R. Rowling’s official biography (www.jkrowling.com/en/index.cfm), her major was French, and thus we
suspect that she has never taken Economics 101 or price theory.
4
Source: http://news.bbc.co.uk/2/hi/entertainment/4692093.stm.
5
Source: http://en.wikipedia.org/wiki/Harry_Potter and http://www.abebooks.com/docs/harry-potter/harry-pottertranslations.shtml.
6
This list does not even include the numerous pirate and unofficial translations that exist in many countries. See
http://en.wikipedia.org/wiki/Harry_Potter_in_translation for more details.
3
India, Macedonia, Poland, Romania, Thailand, Vietnam, and Pakistan, as well as in several
less developed countries including Bangladesh, Lesotho, and Swaziland.7
It is hard to think of any other book that has become so popular amongst such a wide range
of audiences in such a short period of time. Moreover, the readership of the book comes from
all population groups. The books are read by adults as well as children, by people of all levels
of income and education, and by men and women alike. The success of the Harry Potter
books among such a diverse audience, suggests that in addition to telling a story with a plot
that is appealing to a large audience, the author may have also been able to capture the
audience’s popular beliefs and world views. Given the books’ universal appeal, studying the
Potterian economy might be useful as it may shed light on these popular beliefs and views.
Several recent studies of the world of Harry Potter in other disciplines have followed a
similar argument.8 Some of the research questions these studies ask are entirely grounded
within the Potterian world, while other studies focus on the real world and use the Harry
Potter series as a research tool (Weir, 2011). These studies are quite creative, addressing
various interesting questions and issues. For example, in law, Hershovitz (2010) uses the
events and narratives from Harry Potter books to demonstrate that dominant tort theories are
incomplete, while Liston (2009) explores how Harry Potter books shed light on common
understandings and background assumptions about the Anglo-North American concept of the
rule of law. The volume edited by Thomas and Snyder (2010) contains a collection of
academic studies addressing other legal issues in the world of Harry Potter and the lessons
and the insights it offers. In political science, Barton (2006) focuses on what the Harry Potter
books may tell us about the nature, role, and legitimacy of governments.
In medicine, Sheftell, et al. (2007) study the recurrence of headaches amongst the many
characters of the Harry Potter books. After classifying them using the standard international
medical classification system of headache disorders, Sheftell, et al. conclude that their
symptoms appear to be consistent with a migraine. In philosophy, Praagh (2005) uses the
Potterian world to assess how kids act as decision-makers, while Woeste (2010) revisits the
7
According to Brown and Patterson (2006a), Harry Potter books are the third most popular books of the modern time after
The Bible, which ranks first with 2.5 billion copies sold, and The Thoughts of Chairman Mao, which ranks second with 800
million copies sold.
8
Harry Potter series has been a subject of numerous academic studies in various fields. A search in the SSRN archives points
at 26 studies covering issues in law, administrative science, political science, decision making, philosophy, marketing, etc. In
addition, we found 23 scholarly articles listed in the PubMed (a medical studies archive), and dozens of studies in various
subfields of communications, arts, literature, and history. In SciVerse-Scopus (Elsevier’s scientific bibliographic database), a
search of the term “Harry Potter” produces a list with 46 items including 17 in medicine, 14 in engineering, 6 in
neuroscience, 5 in psychology, 3 in pharmacology, toxicology and pharmaceutics, 2 in materials science, 2 in chemistry, 1 in
chemical engineering, 1 in nursing, 1 in biochemistry, genetics and molecular biology and 1 in agricultural and biological
sciences (Source: http://estrip.org/articles/read/tinypliny/45318/Harry_Potter_in_Scientific_Literature.html). Many academic
conferences were devoted, some of them entirely, to the presentation and discussion of these studies. The UCSD’s National
Library of Medicine in collaboration with the National Institute of Health in 2012 has even held an exhibit and a lecture
series on “Harry Potter’s World: Renaissance Science, Magic, and Medicine.”
4
debate over free will and determinism using the world of Harry Potter.9
Another reason to study the Harry Potter books is the books’ possible influence on the
readers. Studies in psychology suggest that “… fiction subtly shapes our beliefs, behaviors,
ethics… [and] powerfully modifies culture and history” (Gottschall, 2012, p. xvii). Indeed,
several studies suggest that the attitudes and the behavior of the Harry Potter books’ readers
are heavily influenced by the books and their messages, so much so that that it might even
shape the readers’ opinions, especially the opinions of the youngsters. For example, Barton
(2006, p. 1525) claims that “…with all due respect to Richard Posner, Cass Sunstein, or Peter
Schuck [reference to the books that these legal scholars have authored in 2005], no book
released in 2005 will have more influence on what kids and adults around the world think
about government than [Rowling’s] The Half-Blood Prince.”10
Gierzynski and Seger (2011) use a survey methodology to assess the effect of Harry Potter
books on the attitude of youth on various social and political issues, including acceptance of
differences, political tolerance, equality, opposition to violence, and corruption. Hallett (2005)
demonstrates that the books have contributed to the popular culture.
Beyond shaping attitudes, it has been suggested that the books have had an impact on
consumers’ shopping patterns. In marketing, for example, Brown and Patterson (2006)
examine consumer responses to the fashion for all Potterian things, and conclude that counter
to common perceptions, fads are typical of today’s entertainment economy. Brown and
Patterson (2009) study “Pottermania” by means of longitudinal qualitative survey of its
readers, and show that there are several distinctive modes of brand assessment. Brown and
Patterson (2010) consider how consumers interact with the Harry Potter brand phenomenon.
Some studies have even documented that the Harry Potter books had an effect on the
readers’ health. Gwilym, et al. (2005), for example, find a statistically significant fall in the
number of children visiting the hospital emergency departments on the weekends that two of
the most recent Harry Potter books were released, whereas Bennett (2003) reports that some
of the young readers of the Harry Potter series have suffered from headaches as a result of
their insistence to read the books cover-to-cover without taking a break.
9
Amazon’s books’ section lists 7,945 items with the words “Harry Potter” included in their title. Hundreds of these items are
books written on the theme of Harry Potter, including guides to reading Harry Potter, interpretation of Harry Potter, lessons
of Harry Potter for various social issues, etc. The specific issues these books address are remarkably diverse. Among them,
for example, are titles like: (1) Looking for God in Harry Potter, (2) The Psychology of Harry Potter, (3) Harry Potter and
History, (4) Harry Potter and International Relations, (5) Harry Potter and Philosophy, (6) Racial Otherness and the Harry
Potter Series, (7) The Politics of Harry Potter, (8) Harry Potter and the Gospel of Christ, (9) Harry Potter: A Christian
Chronicle, (10) Harry Potter and the Bible, (11) Ethics in the Bible and the World of Harry Potter, (12) Law Made Fun
through Harry Potter’s Adventures, and (13) The Sociology of Harry Potter. This is just a small sample of the available titles.
10
Cardinal Joseph Ratzinger, who later became Pope Benedict 16, warned in a 2003 letter that “[Harry Potter books]
…deeply affect (children) and corrupt the Christian faith in souls even before it (the Faith) could properly grow and mature.”
Source: www.tldm.org/News8/Pope%20BenedictAgainstHarryPotter.htm.
5
Similar to these effects and influences, it might be argued that the readers of the Harry
Potter books, consciously or sub-consciously, absorb many of the economic ideas scattered
throughout the books. In that case, compare the Harry Potter books’ popularity to the success
of the best-selling economics textbooks. The best-selling economics textbooks during the last
few years were authored by N.G. Mankiw, which sold over one million copies and were
translated to 17 different languages.11 An even more successful textbook, authored by Paul
Samuelson, sold over four million copies in 40 different languages.12
These figures are very impressive indeed, but they are dwarfed by the sales’ figures of
Harry Potter books. Clearly, comparing a popular fantasy book to academic textbooks, no
matter how successful the latter are, is not a fair comparison. The point, however, is that to the
extent that Harry Potter books teach millions of people of all ages an economic model,
figuring out what that model says might be a worthwhile undertaking. In that sense, studying
the economic model of a best-seller might be considered equivalent to studying the reasons
that make mainstream economists endorse some models and reject others.
Academic studies of the economics of Harry Potter are scarce, although some popular
publications have occasionally discussed some economic issues that were discovered in these
books.13 For example, according to the July 18, 2005 issue of the Guardian, many economic
phenomena can be seen in Harry Potter books, including scarcity, supply and demand, cheap
labor, competition, etc. On a more academic front, some studies cited above that were written
by legal scholars, such as Barton (2006), and some of the essays in law that are included in
Thomas and Snyder (2010), address issues of interest to economists. For example, Gouvin
(2010) and Schooner (2010) discuss the role of the Gringott’s bank in the Potterian World.
Snir and Levy (2010) note the lack of economic growth in the Potterian economy and
examine its consistency with the standard neoclassical growth model. Using the framework of
the Solow model, Snir and Levy assess the behavior of the factors of production (physical
capital, human capital, and labor) and technology in the Potterian economy, and conclude that
their behavior predicts the observed stagnation and lack of growth of the Potterian economy,
consistent with the traditional Solow model.
In this paper, we focus on the (entire) economic model of the Potterian economy by
analyzing its full structure. We find that the Potterian economic model is not a coherent model
that fits neatly one of the standard economic models. Instead, the model appears to combine
ingredients from various economic models. For example, some features of the Potterian
11
Source: http://en.wikipedia.org/wiki/Greg_Mankiw.
Source: http://en.wikipedia.org/wiki/Paul_Samuelson.
13
Studies that conduct economic analysis of literary works include Watts (2002, 2003), Rockoff (1990), and Bookman and
Bookman (2008).
12
6
economy are consistent with the Marxist model, while others fit the public choice perspective.
The Potterians use commodity money although the Potterian economy functions more like
economies that rely on fiat money. Finally, the Potterian economic model has some traditional
Keynesian as well as few more modern New Keynesian features.
The paper is organized as follows. We begin in the next section by offering a brief
description of the general background. In section 3, we study the Potterian monetary system,
focusing on the Potterian money, banking, credit, interest and prices. In section 4, we look at
the Potterian inefficient and corrupt public sector. In section 5, we focus on monopolies,
oligarchies and other pathologies found in the Potterian economy. In section 6, we study
income inequality and social immobility in the Potterian economy. In section 7, we consider
the Potterian perspective on globalization by focusing on international trade and migration of
the Potterians. In section 8, we analyze the Potterian war economy. In section 9, we briefly
discuss the Potterians’ investment in human capital. We conclude in section 10 by
summarizing the main findings and offering two possible interpretations.
2. General background
The story of Harry Potter begins in 1991, when Harry is a 10 years old. He is an orphan
living in the custody of his aunt in a suburb of London. When Harry becomes 11 years old, he
learns that his parents were wizards that were killed by the most powerful wizard of the
period, Lord Voldemort. He also learns that although he grew among non-wizards
(“muggles”), he has the skills to become a wizard like his parents. Furthermore, he discovers
that Lord Voldemort tried to kill him after killing his parents. Harry Potter survived because
Lord Voldemort’s attack backfired and injured Lord Voldemort instead of Harry Potter.
It is commonly believed among wizards that the injury was serious enough to kill Lord
Voldemort, although some believe that he has nevertheless survived. In either case, Harry
Potter discovers that surviving the attack and causing an injury to Lord Voldemort gives him a
special role in the wizards’ society because most wizards were afraid of Lord Voldemort.
At age 11, Harry Potter leaves his aunt’s family and moves to Hogwarts, a boarding school
for witchcraft and wizardry located in the north of England. From then on, most of the Harry
Potter adventures take place in London, Hogwarts and nearby villages and locations. In these
places Harry Potter studies, shops, is interviewed by reporters, enjoys the wizards’ sports and
entertainment and meets senior government officials, wealthy landowners and successful
craftsmen. In these places he also faces many of the challenges that have to do with the
attempts of Lord Voldemort and his supporters to usurp power. At a certain point Voldemort’s
7
supporters declare an open war against the government and manage to take control over much
of the public sector. Harry Potter and some of his colleagues fight back and eventually
manage to defeat the usurpers. The book ends with a scene that depicts the relationships
between the grown up Harry Potter and some of the other protagonists.
3. Potterian monetary system
3.1. Money
Wizards in the Potterian economy use commodity money. They have three types of coins:
gold Galleons, silver Sickles and bronze Knuts, where 1 Gelleon = 17 Sickles and 1 Sickle =
29 Knuts. The coin values are determined solely by their denomination and are independent of
their size. The value of a regular Galleon and a foreign Galleon as big as hubcaps is therefore
the same (Rowling, 2000, p. 50). The coin values are also independent of the values of the
precious metals they are made of. In Rowling (2005), for example, there is an increase in the
demand for silver. This, however, has no effect on the conversion rate between the Sickle and
the other denominations or on prices nominated in Sickles (Rowling 2005, pp. 111 and 117).
Thus the value of the coins as a medium of exchange in the Potterian economy exceeds
their value as a commodity and consequently, although the Potterian money is made of
precious metals, its value is determined solely by the trust that the wizards have in the
monetary system. Furthermore, unlike commodity money, and like the fiduciary money used
in most modern countries, the value of the Potterian money is significantly affected by
fluctuations in the wizards’ trust in the monetary system. For example, in Rowling (2005) the
supply of goods becomes less reliable because of a war. Consequently, prices go sky high,
even though the prices of silver and possibly of other precious metals rise along with the
prices of other goods (Rowling, 2005, pp. 63 and 111).
The Potterian economy, therefore, seems to function like an economy that uses fiduciary
money, with the difference that in the Potterian economy the money is made of precious
metals instead of paper. It is possible that wizards use commodity money because they believe
that precious metals are more difficult to counterfeit than fiduciary money because precious
metals, unlike less valuable materials, cannot be created by magic (Rowling, 2000, p. 67,
Rowling, 2005, p. 352, Rowling 2007, p. 240).14
3.2. Prices
The use of precious metals rather than paper for producing money has a real effect on the
14
www.beyondhogwarts.com/harry-potter/articles/the-five-principal-exceptions-to-gamps-law.html.
8
economy, and this is in addition to the opportunity cost of using the precious metals, which
have alternative uses such as making jewelry and silver daggers (Rowling 2005, p. 188,
Rowling 2007, p. 414). Carrying a large number of coins is both cumbersome and risky.
Wizards therefore tend to store most of their money in bank vaults. Withdrawals (and
deposits), however, are time consuming because they require a lengthy bureaucratic process at
the bank. Consequently, wizards make withdrawals only infrequently and they usually
withdraw only small amounts each time (Rowling 2000, pp. 61 and 352). As a result, the
wizards may get caught cashless, but since most goods purchased daily have low absolute
prices, the wizards can conduct much of their daily shopping activities using just few coins
(Rowling 1999a, p. 50).
In the Potterian economy many prices are set in multiples of 5 and 10 and many goods can
be purchased using one type of coin only. Such prices are known as convenient prices and
empirical studies have documented their extended use in modern economies, such as the
pricing of Coca-Cola at 5¢ in the US from 1886 to 1959 (Levy and Young, 2004, Young and
Levy, 2012), and the pricing of newspapers at 25¢ or $1, depending on the period, in the US
and Canada (Knotek, 2008, 2011, Fisher and Konieczny, 2006).
One reason for the common use of 5- and 0-ending prices is that such price information are
processed faster and more precisely than other prices (Stiving and Winer, 1997). Indeed,
psychologists consider the numbers 0 and 5 cognitively more accessible than other numbers
(Dehaene and Mehler 1992, Snir et al. 2012). While we cannot know why the Potterians have
adopted this form of pricing strategy, we do know that many wizards find it difficult to
calculate the value of goods denominated in foreign currency (Rowling, 2000, p. 50), the
same way as many Europeans found it difficult to convert prices from Euro to their domestic
currencies during the transition period to the Euro (Ehrmann, 2006). The use of 0- and 5ending prices by the Potterian retailers can potentially reduce these inconvenience costs.
Another aspect of price behavior in the Potterian economy is that they are quite rigid. The
price of a newspaper, for example, did not increase for a period of at least 7 years, although
there were significant changes in the demand for news and despite an inflationary bout during
this period (Rowling, 1998, p. 47, Rowling, 2003, p. 203).15 Compare that to the average price
spell of 2–5 years found by Cecchetti (1986) in U.S magazine price data for the period 1953–
1979, 2–3 years found by Bils and Klenow (2004) in US newspaper price data for the period
1995–1997, 6–7 years found by Knotek (2008 and 2011) in US newspaper price data for the
period 1954–2004, and 3–4 years found by Fisher and Konieczny (2006) in Canadian
15
www.hp-lexicon.org/wizworld/money.html.
9
newspaper price data for the period 1965–1990. Thus, the prices in the Potterian economy are
at least as rigid, and perhaps even more rigid, than comparable prices in real economies.16
Another feature of prices in the Potterian economy is that conspicuousness has significant
effect on them. Wizards seem to value goods that signal wealth (Bagwell and Bernheim,
1996), and the prices of such goods tend to be higher than the prices of other goods. For
example, every wizard owns a magic wand. Magic wands, however, cannot be used to signal
wealth because their practical value is so high that all wizards must own a high quality wand.
Magical binoculars and pet animals, on the other hand, are less practical, but both have a great
conspicuous value because only wealthy wizards can afford them. The price of a magic wand
is therefore only a little more than half the price of magical binoculars or of a pet cat.
3.3. Banks, interest, and credit
There is only one bank in the Potterian economy, the Gringotts Bank, and it operates only
one branch, which is located in London and serves both the public and the government.
Although Gringotts Bank serves mostly wizards, the owners and most of the employees of the
bank are Goblins, a type of humanoids that are portrayed as greedy, gold-loving, selfish, and
unfriendly to consumers (Rowling, 1998, p. 50).
The Gringotts Bank offers several services. First, Gringotts is responsible for minting
money and for implementing procedures that will minimize the risk of counterfeiting the
money. There are, however, several ways to counterfeit money, and even school boys, if they
are ambitious enough, can produce high quality counterfeits (Rowling, 2003, p. 352).17
Despite this, the amount of counterfeit money in circulation seems to be low, and the
Gringotts Bank seems to have a fairly good control on the supply of money in circulation.
Second, the Gringotts Bank offers money storage and safe-keeping services. Most wizards
store their gold and other valuables in vaults in the basement of the Gringotts Bank because
the bank has a reputation for being the safest place for keeping money (Rowling, 1998, p. 48).
Third, the bank offers currency exchange services. For example, it is possible to exchange
British pounds for wizards’ money (Rowling, 1999a p. 49, Rowling, 2000, p. 49).18 It is also
16
One popular theory of price rigidity is the menu cost theory which posits that it is costly to change prices (Mankiw, 1985,
Levy, et al., 1997, Dutta, et al. 1999, Zbaracki, et al. 2004). The Potterian price rigidity, however, cannot be explained by
menu costs because most prices are not posted. If retailers prefer the 0- and 5-ending prices because they are convenient, then
they might change them only if they can preserve the 0- or 5-endings. Given the low price level, however, changing a 0- or 5ending price to another 0- or 5-ending price might mean a substantial price change. Coca-Cola faced a similar constraint in
the 1940s-1950s, unable to adjust the 5¢ price to inflation because increasing the price while people would still use a single
coin to buy the drink meant doubling the price from 5¢ (the nickel) to 10¢ (the dime). See Levy and Young (2004).
17
In Rowling (2000) some Leprechauns (a type of dwarves from the Irish mythology) introduce counterfeit gold Galleons in
the marketplace. The immediate result is that people become extra cautious when handling gold Galleons.
18
According to the author, one gold coin is worth about 5 British Pounds “though the exchange rate varies.” Source:
http://harrypotter.wikia.com/wiki/Wizarding_currency.
11
possible to exchange money for precious stones and pieces of arts (Rowling 1998, p. 57).
However, despite being called a bank, the Gringotts is not an ordinary financial
intermediary because it does not offer lending or borrowing services (Rowling, 1999b, p. 41).
There are also no other financial institutions that offer lending or borrowing services. Wizards
that want to borrow must therefore either find a way to spend less, find a friend or a relative
that will lend them money, or borrow from illegal usurers (Rowling, 2000, pp. 472–473, 634–
635). This is true for individuals as well as for the government. Because there are no financial
markets, the government cannot issue debt and therefore, it often has to rely on donations
from wealthy individuals for funding public goods and projects (Rowling, 2000, p. 65).
It is not because of a lack of willingness to lend that Gringotts does not lend money.
Indeed, Gringotts’ employees sometimes offer private usury services (Rowling, 2000, p. 472).
It also does not seem that there is a lack of demand for loans. On the contrary, the lack of
borrowing options is a significant constraint in the wizard society. For example, wizards that
make windfall gains usually consume them immediately, suggesting that they face a binding
income constraint. Entrepreneurs that do not have the necessary capital usually cannot open
businesses (Rowling, 1999b, p. 6, Rowling, 2000, p. 473).
Thus, it is neither the demand for loans nor the willingness to supply loans that inhibits the
formation of credit markets. Instead, it seems that the main reason for the lack of financial
intermediation in the Potterian economy is normative. The Potterians perceive those that
engage in providing financial services as immoral (Rowling, 2000, p. 472, Carlton, 1995,
Hillman, 2010).19 Thus, the Potterian economy is one more society where economic motives
and incentives are overridden by the power of socially stigmatizing financial service
providers. Similar negative sentiments against financial intermediaries were reported by
Radford (1945) at a POW camp. According to Radford, the prisoners in the camp looked with
great suspicion at those who offered basic financial services to their fellow prisoners.
The negative attitude towards financial service providers makes wizards shy away from
such jobs, and the role of bankers in the Potterian economy is filled by Goblins who are
humanoids, i.e. individuals belonging to an inferior social group. Upon becoming bankers, the
Goblins’ social status deteriorates further because they become associated with avarice and
greed. This process leads the Goblins to strengthen the ties with each other which further
increases the Goblins’ social distance from the wizard society (Turner et al., 1994).
19
Portraying bankers and money lenders in fictional works as evil is common throughout history. Examples include Shylock
in Shakespeare’s (1598) Merchant of Venice, Harpagon in Molière’s (1668) Miser, Danglars in Dumas’ (1844) The Count of
Monte Christo, Mr. Merdle in Dickens’ (1857) Little Dorrit, Mr. Banks in Walt-Disney’s (1964) Mary Poppins, the hero in
Ellis’ (1991) American Psycho, and the character of Le Chiffre in the 2006 James Bond movie “Casino Royale” which is
based on the evil Jewish treasurer of the French union in Flemming’s (1953) book Casino Royale.
11
In Europe and Asia, these kinds of social processes have led to the prosecution and
stigmatization of various minority groups, such as Italians and Jews (Carlton, 1995, Hillman,
2010).20 In the Potterian economy, this leads to a state of conflict between wizards and
Goblins, with Goblins being treated as inferiors even though they provide cheap, efficient and
economically beneficial services. It also inhibits almost all forms of mutual interactions and
relationships between wizards and Goblins (Rowling, 1998, p. 48, Rowling, 2007, p. 417).21
4. Public sector
The Potterian government is comprised of a single ministry, the Ministry of Magic, headed
by the minister of magic. The ministry is responsible for all public affairs and is the largest
employer. Its various departments are responsible for providing goods and services such as
transportation, health, legal system, communication, education, security, sports, etc.
De-facto, department heads, and especially the heads of the largest departments, seem to
manage their departments’ affairs with little external interference unless public blunders occur
(Rowling, 1999a, p. 189). De-Jura, however, department heads should report to the heads of
more senior departments, who in turn report to the minister of magic, who serves as the prime
minister of the wizard community. It is unclear how the minister of magic and other senior
officials are elected, but the election process seems to depend on the public opinion, on the
will of wealthy wizards, and on the will of other senior public officials. Three examples are
Mr. Bagman, Mr. Fudge and Mr. Weasley. Mr. Bagman heads the sports department only
because of his popularity as a former sport-star and despite having no qualifications for the
job (Rowling, 2000, pp. 40, 56, and 342). Mr. Fudge was elected as the minister of magic
only thanks to the support of wealthy wizards, and not because he is visionary or because he
has superior managerial skills (Rowling, 2000, p. 95, 454).22 Mr. Weasley is kept in a small
department because he does not have the goodwill of his superiors (Rowling, 2005, p. 69).
Once his superiors are replaced, he is immediately promoted to head a larger department
(Rowling, 2005, p. 84).
20
Some have noted that the goblin-bankers in the movie adaptation of the Harry Potter books were depicted with aquiline
noses and greedy looking faces, similar to the cartoons used to stereotype against bankers and financiers in Europe in the late
19 century. These allegations were vehemently denied by the production team. Source:
http://momentmagazine.wordpress.com/2011/07/14/debunking-the-harry-potter-anti-semitism-myth/. One of the readers has
suggested that the goblins are merely a joke on the theme of “Gnomes of Zurich.” While that might be the case, that does not
explain why the goblins are depicted in the Harry Potter movie series as characters with stereotypical aquiline noses.
21
Such negative attitudes appear to prevail even these days. For example, according to a recent NY Times report, in a Roper
poll that was conducted from July 28, 2005 to August 10, 2005 in the US, “…only 9 percent said they had full trust in
financial services institutions, down from 14 percent last year.” The article offers the following reasoning: “There is a sense
that business is a zero-sum game, that if companies are making a lot of money, it must be coming out of someone else’s
pocket.” (Source: “New Surveys Show that Big Business Has a P.R. Problem,” by Claudia H. Deutsch, NY Times, December
9, 2005, Late Edition-Final, Section C, Column 2). The regulatory failures and other events of the last few years that rocked
the financial service industries may have further deepened the feeling of distrust between the public and financial institutions.
22
http://harrypotter.wikia.com/wiki/Cornelius_Fudge.
12
These and other similar examples suggest that for upward mobility, a public sector
employee does not need to be efficient and diligent. Rather, he needs to earn the goodwill of
the senior department heads, influential journalists, and the wealthy wizards (Rowling, 2000,
p. 37, 58, Rowling, 2005, p. 69).
Whereas the inefficiency in promotions results in underemployment because employees
are either over- or under- qualified for their positions, job security leads to a significant
hidden unemployment. Public sector employees seem to receive automatic job tenure, making
it impossible to fire even the most inefficient workers (Rowling, 2000, pp. 40, 56, 58).
Furthermore, in the Potterian public sector, the importance of connections is not limited to
individuals. Indeed, the status and the budget of each department depend less on the role of
the department and more on the influence its head has on senior officials and on the minister
of magic. For example, even at a time of growing personal insecurity, the departments
responsible for law enforcement are underfunded and undermanned while other departments
enjoy generous budgets and better work conditions (Rowling, 2003, pp. 117, and 121–122).
Hayek (1972) and Popper (2002) have warned that giving too much power to government
institutions will eventually lead to a situation where the leaders are those that are most eager
to obtain power, and not those who are most interested in the welfare of the public. Empirical
and theoretical evidence suggests that lack of transparency in the promotion system is likely
to exacerbate such processes (Strömberg, 2004).
The Potterian economy satisfies these two conditions. The public sector exerts substantial
power and control over the production and supply of almost every type of good or service
including health, law, education, sports, entertainment, travel, etc. The general public has only
limited information about the decision making process of the public sector because of their
lack of transparency. Also, the editors of the main newspaper the Potterians read, the Daily
Prophet, have good relationships with senior public officials and with wealthy individuals.
The latter often fund public goods and thus have significant influence on both senior public
officials and on public policy (Rowling, 1999a, p. 189, 224, Rowling, 2000, p. 65, 285). The
editors of the Daily Prophet, therefore, have incentive to publish information that favors high
ranking public officials. Senior public officials reciprocate by making decisions favoring
wealthy wizards and the reporters of the Daily Prophet (Rowling, 2003, p. 500, Rowling,
2005, p. 71, 89, Strömberg, 2004, Gentzkow and Shapiro, 2006).
The structure of the Potterian public sector thus encourages public officials to seek
personal rents at the expense of public welfare (Rose-Ackerman, 1996, Hillman, 2009). Rent
seeking activity is so much the norm in the Ministry of Magic that high ranking and highly
13
regarded public officials do not hesitate to state the personal motives when they are acting on
behalf of a private entrepreneur (Rowling, 2000, p. 59). Other public officials take bribes
from criminals that they should be punishing (Rowling, 2007, p. 182).
Public officials also assist their family members and other associates. Nepotism is common
so much so that often entire families work at the Ministry of Magic (Rowling, 2000, p. 37). In
addition, family members and associates of senior public officials frequently receive perks
and services that would not be granted to others (Rowling, 2000, p. 442). High income
wizards that can support high ranking public officials by, for example, providing money to
fund public expenditures, are often reciprocated by getting access to these officials and
influencing their decisions (Rowling, 1999a, p. 224, Rowling, 2000, p. 65).
Junior public officials imitate their senior colleagues by putting more effort into pleasing
their superiors and following their orders than fulfilling their duties (Rowling, 2000, p. 58,
Rowling 2003, p. 68). This further deepens the public sector’s inefficiency because those that
take bribes are also the ones that tend to get the support of their superiors and, therefore, are
the ones that get promoted. Thus, the Potterians that end at the top positions are those that are
most interested in promoting their personal interests and the interests of influential social
groups that they represent (Rowling 1999a, p. 222, Rowling, 2003, p. 60, 88)
Despite the inefficiencies of the public sector, it seems that it nevertheless has a
considerable public support. For example, even after the Ministry of Magic admits that it has
made a serious mistake in not responding to an immediate threat which put the lives of many
wizards in danger, the public opinion was appeased by simply replacing one senior official
with another (Rowling, 2005, p. 40). This strong support for the public sector seems to be
partly due to its size. Wizards depend on the Ministry of Magic both for work and for
receiving public goods and thus they are afraid of upsetting senior public officials because
that might cost them their jobs, their good reputation, and even their civil rights.23, 24
5. Monopolies, oligarchies, and other pathologies
The number of consumers in the Potterian economy is relatively small. Moreover, the
population size has not changed for many generations. Hogwarts School, for example, where
most British wizards are taught, was built over 1,000 years ago and its size did not change
23
In some cases, for example, wizards were put in prison when they did not have good relationships with senior public
officials, whereas wizards with good relationships had almost an unlimited freedom in conducting their affairs (Rowling,
1998, p. 87, Rowling, 1999a, p. 225, 288, Rowling 2005, p. 345).
24
The theories of self-perception and cognitive dissonance predict that if the government employees perceive themselves as
benevolent, then they will think that the government is beneficial (Festinger, 1957, Bem, 1972, Bénabou and Tirole, 2002,
Gentzkow and Shapiro, 2006, Rowling, 2003, p. 90). To maintain a positive self-image, therefore, a wizard that works for the
public sector will convince himself that the public sector is benevolent, as otherwise he will be facing a dissonance.
14
since, suggesting that the number of wizard children remained stable for at least that long. In
addition, most wizards live either near London or near a village in the north of England called
Hogsmeade. Consequently, two shopping centers, one located at Hogsmeade and the other on
Diagon Alley in London, are sufficient to supply most of the demand of the English wizards.
Most businesses operating at these shopping centers have been around for a long period.
One reason for the low business turnover is the strict regulation, which often leads to a
situation where few well-connected entrepreneurs obtain a monopoly power. Public officials
often apply the regulations selectively at their discretion to block competition (Rowling, 2000,
p. 59). Consequently, new businesses can open and compete only if they provide goods in
which the officials have personal interest (Rowling, 2000, p.37, p. 59, Rowling 2005, p.119).
For example, in Rowling (2000, pp. 83–84), an entrepreneur wants to import flying carpets
which could substitute flying brooms. However, he is blocked by the Ministry of Magic’s
regulations which define carpets as objects that are too similar to objects used by non-wizards.
Although the argument is weak, the regulations cannot be changed due to technicalities. A
senior public official, that nevertheless act to change the regulations, openly admits that he
does so because of his personal interest in obtaining a flying-carpet (Rowling 2000, p. 84).
As another example, consider a major sporting event which could draw the attention of
many bookies (Rowling, 2000, p. 81). However, the only bookie around is the government
official that organized the event. It is unclear what prevented other bookies from attending.
But this seems like a case of a public official taking advantage of his position.
Another reason for the low business turnover is the absence of financial markets. Most
wizards do not have the capital needed to open a new business and thus aspiring entrepreneurs
are forced to solicit the help of wealthy wizards. That’s how Borgin and Burkes opened a
shop at the end of the 19th century, and that’s how Weasley twins managed to open a shop
about 100 years after Borgin and Burkes (Rowling, 2007, p. 116).25 Very few, if any, other
entrepreneurs have opened new shops in Diagon Alley during the intervening period.
Another factor contributing to the low business turnover is the monopoly on information in
the Potterian economy. The wizards’ main source of information on daily events is the Daily
Prophet, and its evening version, The Evening Prophet.26 The monopoly power allows the
Daily Prophet to publish biased information, such as the material it published about Harry
Potter to please wealthy wizards that had personal grudge against him (Rowling, 2000, p. 285,
Rowling, 2003, p. 90).
25
http://harrypotter.wikia.com/wiki/Borgin_and_Burkes.
There is one additional publication, The Squibbler, which is considered as reliable as the modern day tabloids that publish
articles such as “I Was Abducted by Extraterrestrial Beings!” “I Was Kidnapped by Aliens!” “I Married a Two-Headed
Monster,” “I Saw Bigfoot in My Back Yard,” etc.
26
15
Similarly, the Daily Prophet seems to prevent information about new products or new
retailers from reaching the public. For example, Harry Potter and Hermione Granger do not
know about the shop the Weasley twins open although they both read the newspaper
regularly. The newspaper does not publish advertisements by the twins or gives the public any
information about their shop although the shop has become an immense success (Rowling
2005, p. 119). Thus, new entrepreneurs must find ways to promote their products without
using the Daily Prophet.
These failures of the Potterian economy lead to high entry costs and, therefore, limit the
number of sellers and give the existing firms market power (Rowling, 1998, p. 64, Rowling,
2003, p. 114, Rowling, 2005, p. 106). While it is hard to assess the effect of market
concentration on markups, the extent of price rigidity and the frequent use of convenient
prices suggest that the Potterian retailers likely have substantial profit margins. That may
explain why opening the market for magic caldrons to imports was expected to drive the
prices down significantly (Rowling, 2000, p. 37).
The effects of market power on consumers’ welfare go beyond its impact on prices. The
low business turnover limits product variety and innovations. For example, the same
textbooks are used for over 20 years. Children consume the same candies and collect the same
cards as their parents (Rowling, 1998, p. 81, Rowling, 2000, p. 374, Rowling, 2005, p. 189).
Thus, the lack of competition limits the choice of the Potterians despite the demand for new
products as suggested by the immediate success of the Weasleys’ shop and the demand for
new models of flying brooms (Rowling, 1999b, p. 42, Rowling, 2005, p. 116, Tirole, 1988).
6. Income inequality and social immobility
The wizards’ society is composed of a large middle class and a small high class. The
middle class wizards’ income allows them to live comfortably but not enough to save. They,
therefore, continue living with their families and keep on working for almost their entire lives
(Rowling, 1998, p. 79, Rowling, 1999b, p. 30, Rowling, 1999b, p. 95, Rowling, 2003, p.105).
High class wizards enjoy a luxury life style and own almost all the assets in the Potterian
Economy (Rowling, 1999b, p. 193, Rowling, 2003, p. 76, Rowling, 2007, p. 369–370).
Social mobility between the classes is mostly downward. Opportunities to move up the
social ladder are limited.27 For example, in the entire series, there is just one prominent
27
This seems to be in line with the empirical findings on social mobility in the Western world, where downward mobility is
more common than upward mobility (Dearden et al., 1997).
16
character that made it from the bottom to the top, the evil Lord Voldemort.28
One reason for the limited social mobility is the limit on free entrepreneurship, which is
partly due to social norms. The Weasley twins’ mom, for example, proud of her family’s
honesty and dignity, does not encourage her kids’ entrepreneurial aspirations. She prefers that
they get public sector jobs (Rowling, 2003, p.156). Most wizards think similarly. Such social
antagonization of entrepreneurship can be a significant barrier to entry (Clain, 2000).
Those wizards who might still pursue entrepreneurial activities are likely to face significant
financial constraints because of the absence of financial intermediaries. The likelihood of
obtaining a loan is small also because high class wizards that can finance an aspiring
entrepreneur tend not to associate themselves with middle class wizards.
Furthermore, wealthy wizards try to maintain their social status since they view themselves
as the descendent of the oldest and the noblest families, superior to other wizards, especially
to wizards that come from non-wizard families (“mud-bloods”), who are viewed as a threat
because, like immigrants, they bring with them different culture and different norms
(Rowling, 1998, pp. 9–10, 84, Rowling 2007, p. 604). The mud-blood wizards are therefore
subject to constant harassment, ridicule, abuse and discrimination from the “pure-blood”
wizards.29 High class wizards are thus unlikely to grant a loan or give any assistance to a
middle class wizard aspiring to climb up the social ladder (Rowling, 2003, p. 104).
To the contrary, high class wizards favor policies that limit the economic and political
influence of the middle class wizards. Most of the supporters of Lord Voldemort, for example,
come from wealthy families, and their main purpose is to enslave the lower classes, especially
the mud bloods. Preserving the existing social structure is so important to the upper class that
they are ready to accept the leadership of Lord Voldemort despite his dubious background.
The taste for discrimination of the high class wizards against lower class wizards reduces
the chances of a middle class wizard to climb up the social ladder by obtaining a position of
influence in the public or the private sector (Becker, 1971, Arrow, 1974). Indeed, high class
wizards are unlikely to give middle class wizards senior jobs and positions in the private
sector, and they use their influence in the public sector and with the media to prevent middle
class wizards from obtaining important positions in the public sector (Rowling, 2003, p. 196).
For similar reasons, the middle class wizards are unlikely to move up the social ladder
through marriage. The social distance between high and middle class wizards makes
interactions between wizards from different classes rare and often unpleasant. If high income
28
Lord Voldemort comes from an old, well-established family, although one that came off its assets (Rowling, 2005, pp.
213–214).
29
“Mud-blood” is a common insult in Harry Potter books referring to wizards who come from non-wizard families. In
addition, there are half-blood wizards, who come from mixed families.
17
wizards nevertheless associate themselves with middle class wizards, they are often
disinherited by their families (Rowling, 1999a, p. 96, Rowling, 2003, p. 103). The social
distance between wizards of different classes is unlikely to mitigate over time because each
generation of high income wizards receives the same education as its predecessors and is
composed only of those wizards that have shown the same taste for discrimination as their
predecessors (Kocka, 1984).
While the discrimination of high class wizards against lower class wizards is an important
contributor to the limited upward mobility of the latter, it is also an important contributor to
their downward social mobility. This is because high income wizards often disinherit heirs
who are associated with middle class wizards. In addition, financial squanders ruin the wealth
of families. Often, such squanders are made by heirs that are mentally or physically retarded
because of interbreeding among wealthy families (Rowling, 2003, p. 103, Rowling, 2005, p.
202, Alvarez et al., 2009).
Thus, in the Potterian society, only an unusual combination of exceptional talent and
circumstances can propel somebody from the bottom to the top. Potterian social status quo
persists because the influence of the high income wizards on the media and on the public
sector makes it unlikely that the government will change the situation by affirmative action or
by differential investment in education (Mulligan, 1999, Strömberg, 2004).30
7. International trade and migration: Potterian perspective on globalization
Potterians can travel long distances easily and cheaply. Moreover, there are hardly any
restrictions on international travel and thus they can travel with minimal, or even without
reporting to the authorities (Rowling, 1998, p. 85, 234, Rowling 2000, p. 62, Rowling, 2005,
p. 91). Nevertheless, there is little international trade in the Potterian economy, which partly is
due to government regulations. These erect many administrative and bureaucratic barriers
which limit the Potterians’ ability to import goods.
Trade and travel are limited also by linguistic barriers. Most wizards speak only one
language, the English. Non-wizards might speak more than one language but their English is
not fluent. In addition, there are substantial cultural barriers, as the wizards lack basic
knowledge about other people’s customs, traditions, etc. For example, when a group of
foreign students visits Hogwarts, there are many incidents of misunderstanding between the
students from different schools even after several months of living on the same premises
30
For example, the books make it very clear that the wealth of families like those of Crabb and Goyle is unrelated to their
skills, talent, or work ethic. At the same time, Hermione, the most talented character in the book does not aspire to become
more than a professor, a respectful job but not one that involves climbing the ladder too high.
18
(Rowling, 2000, pp. 163–164, 274). Similar misunderstandings are frequent between a French
bride and her English husband’s family (Rowling, 2005, p. 92).
The lack of openness to other cultures reduces the demand for foreign goods. For example,
it is responsible for the lack of knowledge that a great connoisseur in flying equipment has in
flying carpets (Rowling, 2000, p. 59). It might explain also the absence of restaurants serving
foreign/ethnic food in London and Hogsmeade.31 There is also a lack of information about the
quality of foreign goods. For example, when a leading wand maker in England disappears,
many wizards do not know where to find a wand maker although there are several producers
of quality wands in other countries (Rowling, 2000, p.201, Rowling, 2005, p. 106).
Potterians’ stereotypical prejudices against foreigners limit trade and travel further. For
example, a British government official sneers at his Bulgarian colleagues, French and English
students snob each other, and Romania and Albania are considered states where vampires and
dragons roam freely (Rowling 1998, 107, Rowling, 2000, p. 57, 163, Rowling, 2005, p. 92).
Without a network of immigrants that can facilitate information transfer between countries,
the consumers and producers do not know about the needs and preferences of other people. In
the rare cases where immigrants try to import goods from their home countries, their attempts
are blocked by the government protecting the local producers (Rowling, 2000, p. 58).
Despite all their prejudices against foreigners, the wizards use elves, a special kind of
humanoids, to do manual and dirty work. They are like foreign workers who do the jobs the
wizards find unpleasant. Although the elves produce many goods and services the wizards
consume, they are almost transparent to their wizard employers. They work in terrible
conditions, they do not own even their clothing, and they rarely bath or make effort to
improve their appearance. But, they are the wet dream of a caricature capitalist: they are
diligent, work without a break for many years, accept slavery conditions and are extremely
afraid of being sacked, because unemployment is an almost certain death for them. Under
such conditions, even if there are prejudices against foreigners, the wizards are willing to
tolerate them, at least as long as they stick to their place and do not cross their boundaries
(Rowling, 2000 p. 63, Rowling, 2007, p. 386).
8. War economics
In Rowling (2005) the wizards find themselves fighting a terror war against a group called
Death Eaters whose goal is to achieve a new political and social order where all the power is
31
This is in contrast to the large number of foreign restaurants in modern London. For example, there are 984 European
restaurants, 903 Indian, 529 French, 495 Chinese, 376 Asian, 349 American, 82 African and 82 Caribbean. Source:
www.tripadvisor.co.uk/Restaurants-g186338-London_England.html.
19
concentrated in its hands. The group members are extremely committed and are willing to use
any form of violence, including suicide attacks, to achieve their goal.
The first signs of danger appear two years before the war starts but the government ignores
the signs (Rowling, 2000, Tuchman, 1990).32 Given the government’s incompetence, people
voluntarily contribute their time, money and effort to form the Order of the Phoenix, and fight
the terror organization to the best of its ability (Rowling, 2003). The Order of the Phoenix
however, gains only a limited public support. Volunteering for the Order requires effort, time
and willingness to take risks. Even the wizards supporting the Order in private are therefore
unwilling to translate their support into actions because of the fear of becoming targets to
terrorists’ attacks. The lack of government intervention is thus extremely significant because
the high personal costs of contributing to public good reduce the likelihood of successful
private provision to nearly zero (Rowling, 2003, p. 89, Bliss and Nalebuff, 1984).
The government inefficiency is not limited to the speed with which it reacts to the terror
threat. It takes less than one paragraph for the Weasley twins to convey to Harry Potter and
his friends, how easy it is to sell the government equipment that would be unnecessary if the
government ensured a proper training of its staff (Rowling, 2005, p. 119). This is just one
example of how the public pays for the government inability to handle emergency situations.
The government’s sudden need to obtain military equipment thus leads to wasteful
production. As more resources are spent on supplying military needs, common people find it
hard to obtain stuff they need for daily life. Indeed, Professor Slughorn complains that due to
the war, prices are sky-high (Rowling, 2005, p. 65).
The public sector inefficiency turns the war into an opportunity for swindlers. The general
feeling of insecurity increases the demand for goods that give a sense of security, even when
it is a false sense. Quakes and swindlers take advantage of the public’s need and desire for
security by selling useless amulets and silverware (Rowling, 2005, p. 84).33
The effects of terror on the economy extend beyond the direct effects on consumption and
production. Terror generates fear which influences people’s decisions. As predicted by Becker
and Rubinstein (2004), fear affects also the mood of the people by making everything less
enjoyable. Indeed, the usually crowded “Leaky Cauldron” bar is empty because even the most
loyal consumers seem to have lost their appetite for a drink (Rowling, 2005, p. 110). For
example, In Rowling (2006, pp. 109–110), the owner of “Leaky Cauldron” bar notices Hagrid
32
Compare this with the often heard criticisms of modern western governments concerning their failures in fighting
terrorism, in handling natural disasters, etc. See, for example, http://msnbc.msn.com/id/4594652/,
www.msnbc.msn.com/id/9614737/, and www.msnbc.msn.com/id/9661312/.
33
Similar security needs in modern societies lead individuals and governments to spend millions of dollars on useless bomb
detectors sold by swindlers. Source: www.guardian.co.uk/uk/2013/apr/23/somerset-business-guilty-fake-bombs.
21
who is well known for his fondness for alcohol. From the landlord’s reaction it is clear that
Hagrid is one of his last loyal customers.34
9. Investment in human capital
Harry Potter books revolve around the life at the Hogwarts School of Magic. It is fitting,
therefore, to end with a discussion of the Potterian education system.
The Potterians value education highly as can be seen, for example, by the interest that the
wizards show in an international competition between the best students. This competition is a
main topic in the national media. In fact, the Minister of Magic, the wizards’ prime minister,
is personally involved in the various stages of the competition (Rowling, 2000, p. 202, 400).
Another evidence of the value the wizards attach to education is their willingness to become
teachers even though teachers’ salaries are not high. A school headmaster is one of the most
influential characters in the story, and even a very successful book writer believes that serving
as a teacher will increase his popularity (Rowling, 1999a, p. 53, Rowling, 2003, p. 88).
The Potterian state-financed education system also seems to ensure that all wizards go to
the same high-quality schools. All wizards therefore, graduate with knowledge that allows
them to find a job and maintain productive life. From this perspective, the Potterian education
system seems as a utopia: Hogwarts is almost the only place where all wizards are equal, and
where lower and higher class people can compete with each other.
Like the island Utopia, however, the Potterian education system is not problem-free (More,
1997). Hogwarts is under the supervision of the Ministry of Magic and, thus it is subject to
the influence of politics and politicians. For example, the government can interfere with the
school curriculum and the school’s governance, such as a choice of teachers (Rowling, 2003,
p. 274). The parents however, do not show interest in this interference. They do not move
their children from the school, nor do they protest or organize petitions to the ministry of
magic. Most parents in the Potterian economy are content with receiving information from the
biased media and do not attempt to acquire further information from independent sources
(Darley and Latane, 1968, Bliss and Nalebuff, 1984, and Hirshleifer, 1983).35 This failure
demonstrates again the difficulty of coordinating effective private provision of a public good.
Another weakness of Hogwarts and other schools for wizards is that they did not change
34
The effects of fear might be long-lasting and the consumers might never regain fully their appetite for beer. Indeed, many
wizards remember and respond irrationally when they hear the name Voldemort even after many years that he was thought to
be dead (Huddy, et al., 2002).
35
In 2006, the Ministry of Education in Israel tried to pass a major reform of the public education. This led to a struggle with
the teachers. Like the Potterians, the Israeli parents remained passive even though the reform had serious implications for the
future education of their children. Similarly, the German Education Ministry tried in 2005 to implement reforms in the
teaching curriculum. Although some of the reforms were controversial and raised objections from the teachers’ unions, the
general public remained mostly uninvolved. See, for example, www.germnews.de/cgi-bin/show/dn/2005/08/14.html/6.
21
their curriculum for hundreds of years. Consequently, their graduates are all talented but the
young wizards do not have more knowledge than their parents had (Rowling, 1998, p. 106).
The education system also does not encourage innovative and creative thinking (Levy and
Snir, 2010). The Potterian students focus on practical skills, but learn very little theory,
literature, arts, languages, or philosophy. They lack innovative skills and are unable to think
originally or independently (Rowling, 2000, p. 437), which diminishes entrepreneurial spirit.
The lack of training in theoretic and innovative thinking is exacerbated by the lack higher
education system. After graduating from Hogwarts, wizards choose a profession and usually
stick to it. The students are matched with jobs that fit their skill-set best when they are 16 and
they are encouraged to take courses that will be useful in their future careers (Rowling, 2003).
None of the students, however, not even Hermione who is the best student at Hogwarts, is
advised to study further, and thus, the Potterians’ stock of knowledge is not increasing.
10. Conclusion
We find that the Potterian economic model it is not a coherent model that fits neatly one of
the standard economic models. Instead, it combines ingredients from various economic
models. For example, the war in the Potterian economy is motivated partly by Marxian
notions of a class struggle that must occur if the elite amasses all the capital and power and
fights the workers who demand their share. The books, however, also frequently adopt the
opposite public choice point of view. For example, the public sector is inefficient and corrupt,
full of both underemployment and hidden unemployment. Thus, the Potterian economic ideas
are both critical of the modern capitalist system, and of the public sector that is viewed as a
leviathan government infested with rent-seeking bureaucrats (Rowling, 2003, p. 88).
Another incongruity of the Potterian society is its monetary economy. The wizards use
commodity money as a medium of exchange, unit of account, and store of value. However,
unlike economies with commodity money where the value of money depends on the value of
the commodity (Rockoff, 1990), the Potterian money functions more like a fiduciary money
whose value depends on public’s trust.
Finally, the Potterian model has a trivial but still interesting New Keynesian feature. The
price of the Daily Prophet remains rigid at one bronze Knut for seven years, yet the Potterians
enjoy full employment, which may be an outcome of the Potterian government’s practice of
following a full employment policy in a more traditional Keynesian spirit.
There are two possible interpretations of the Potterian economic model. One interpretation
is that the Potterian economic model is merely a reflection of the popular views and opinions
22
as transmitted by the author. Under this interpretation, the large number of readers willingly
investing money, time, and efforts into obtaining and reading a book, suggests that the writer
has managed to create a model that the readers can relate to (Derrida, 1993). If this is a valid
interpretation, then the structure of the Potterian model might be viewed as a reflection of folk
or popular economics, i.e., the beliefs and opinions of untrained people about the economy.
An alternative interpretation, however, is that even if the Potterian model is liked by many,
it cannot be informative about their opinions and beliefs. According to this view, Harry Potter
books are liked by many grownups that read them, but it is primarily written for children.
That is why the Potterian economy is so simple, with no capital markets, no taxes, no social
mobility, etc. These are merely simplifying assumptions the author had to make with the goal
of making the books more children-friendly. Given that kids have very little understanding of
taxes, for example, it is not so surprising that the Potterian economy has no taxes.
Other aspects of the Potterian world, under this interpretation, can be explained by the fact
that the books belong to a fantasy genre set in medieval times. Wizards, goblins, and dragons
are typically associated with medieval times. That explains the use of commodity money.
The lack of economic growth of the Potterian economy, as documented in Levy and Snir
(2010) is a necessary ingredient for making the events described in the books credible, as
these events take place during a period in which much of the world is stagnating because there
is no increase in the stock of capital or in population, and there is no technological progress.
The corrupt and inefficient government can be explained, according to this view, as a
literary device similar to the one used in many comics books such as Superman and Batman:
it is necessary to have an inefficient and corrupt public sector in order to have a need for a
hero in the form of Harry Potter and his sidekicks.
Even under that interpretation, however, the Harry Potter books point perhaps at the
change that has occurred in the popular public opinion during the recent decades. In both
Asimov’s Foundation series and Tolkien’s Lord of the Rings, for example, the government is
depicted as benevolent and generally efficient. This is counter to the type of government that
the Potterians have. As another example, in the Lord of the Rings money is depicted as
traditional commodity money whose value is determined by the value of the commodity
comprising it. This is counter to the Potterian money.
Future studies should analyze the economic content of other literary texts to better
understanding how popular opinions about the economy are formed and how they adapt and
change over time. A recent example of such an analysis is Miller and Watts’ (2011) study of
the economics found in the books of Dr. Seuss.
23
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