Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
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 References Bagwell, Laurie S. and Douglas B. Bernheim (1996), “Veblen Effects in a Theory of Conspicuous Consumption,” American Economic Review 66(1), 349–373. Barton, Benjamin H. (2006), “Harry Potter and the Half-Crazed Bureaucracy,” Michigan Law Review 104, 1523–1538; reprinted in The Law and Harry Potter, Jeffrey Thomas and Franklin Snyder, Ed. (Durham, NC: Carolina Academic Press), 2010, 33–47. Becker, Gary S. (1971), The Economics of Discrimination, 2nd Ed. (Chicago: The University of Chicago Press). Becker, Gary S. and Yona Rubinstein (2004), “Fear and the Response to Terrorism: An Economic Analysis,” Working Paper, London School of Economics. Bem, Daryl J. (1972), “Self-Perception Theory,” in L. Berkowitz (Ed.), Advances in Experimental Social Psychology, Volume 6 (New York, NY: Academic Press). Bénabou, Roland and Jean Tirole (2002), “Self-Confidence and Personal Motivation,” Quarterly Journal of Economics 117(3), 871–915. Bennett, Howard J. (2003), “Hogwarts Headaches—Misery for Muggles,” New England Journal of Medicine 349(18), 1779. Bils, Mark and Peter J. Klenow (2004), “Some Evidence on the Importance of Sticky Prices,” Journal of Political Economy 112(5), 947–985. Bliss, Christopher and Barry Nalebuff (1984), “Dragon Slaying and Ball Room Dancing: The Private Supply of Public Goods,” Journal of Public Economics 25, 1–12. Bookman, M. Z. and A. S. Bookman (2008), Economics in Film and Fiction (Lanham, MD: Rowman & Littlefield). Brown, Stephen and Anthony Patterson (2006a), “Riddikulus! Consumer Reflections on the Harry Potter Phenomenon,” Consuming Books: The Marketing and Consumption of Literature (S. Brown, Sage), 146. Brown Stephen and Anthony Patterson (2006b) “You’re a Wizard Harry! Consumer Response to the Harry Potter Phenomenon,” Advances in Consumer Research 33, 155–160. Brown, Stephen and Anthony Patterson (2009), “Harry Potter and the Service-Dominant Logic of Marketing,” Journal of Marketing Management 25(5-6), 519–533. Brown, Stephen and Anthony Patterson (2010), “Selling Stories: Harry Potter and the Marketing Plot,” Psychology and Marketing 27(6), 541–556. Carlton, Dennis W. (1995), “Economic Organization and Conflict,” Journal of Institutional and Theoretical Economics 151(1), 218–236. Cecchetti, Stephen (1986), “The Frequency of Price Adjustment: A study of the Newsstand Prices of Magazines,” Journal of Econometrics 31, 255–274. Clain, Suzanne H. (2000), “Gender Difference in Full-Time Self-Employment,” Journal of Economics and Business 52, 499–513. Darley, John M. and Bibb Latane (1968), “Bystander Intervention in Emergencies: Diffusion of Responsibility,” Journal of Personality and Social Psychology 8, 377–383. Dearden, Lorraine, Stephen Machin, and Howard Reed (1997), “Intergenerational Mobility in Britain,” Economic Journal 107, 47–66. Dehaene, S. and Mehler, J. (1992), “Cross-Linguistic Regularities in the Frequency of Number Words,” Cognition 43, 1–29. Derrida, J. (1993), Dissemination (London: Continuum International Publishing Group). Dumas, Alexander (2012), Works of Alexander Dumas (NY, NY: Delphi Classics). Ehrmann, Michael (2011), “Inflation Developments and Perceptions after the Euro Cash Changeover,” German Economic Review 12(1), 33–58. Festinger, L. (1957), A Theory of Cognitive Dissonance (Stanford, CA: Stanford Univ. Press). Fisher, T. and Jerzy D. Konieczny (2006), “Inflation and Costly Price Adjustment: A Study of Canadian Newspaper Prices,” Journal of Money, Credit and Banking 38(3), 615–633. 24 Gentzkow, Matthew and Jesse M. Shapiro (2006), “Media Bias and Reputation,” Journal of Political Economy 114(2), 280–316. Gierzynski, Anthony and Julie Seger (2011), “Harry Potter and the Millennials: the BoyWho-Lived and the Politics of a Muggle Generation,” presented at the 2011 American Political Science Association Annual Meeting. Gottschall, Jonathan (2012), The Storytelling Animal: How Stories Make Us Human (New York, NY: Houghton Mifflin Harcourt). Gouvin, Eric J. (2010), “The Magic of Money and Banking,” in The Law and Harry Potter, Jeffrey Thomas and Franklin Snyder, Ed. (Durham, NC: Carolina Acad. Press), 237–260. Gwilym, Stephen, Dominic P.J. Howard, Nev Davies, and Keith Willett (2005), “Harry Potter Casts a Spell on Accident Prone Children,” British Medical Journal 331, 1505–1506. Hallett, Cynthia Whitney, Ed. (2005), Scholarly Studies in Harry Potter: Applying Academic Methods to a Popular Text (London: Edwin Mellen Press). Hayek von, F.A. (1972), The Road to Serfdom (Chicago: University of Chicago Press). Hershovitz, Scott (2010), “Harry Potter and the Trouble with Tort Theory,” Stanford Law Review 63, 67–114. Hillman, Arye (2009), Public Finance and Public Policy: Responsibilities and Limitations of Government (Cambridge, UK: Cambridge University Press). Hillman, Arye (2010), “Economics and Anti-Semitism,” manuscript, presented at the August 2010 Yale University Conference on “Global Anti-Semitism: a Crisis of Modernity.” Hirshleifer, Jack (1983), “From Weakest-Link to Best-Shot: the Voluntary Provision of Public Goods,” Public Choice 41(3), 371–386. Huddy, L., S. Feldman, T. Capelos and C. Provost (2002), “The Consequences of Terrorism: Disentangling the Effects of Personal and National Threat,” Political Psychology 23(7), 485–509. Knight, Frank H. (1965), The Economic Organization (New York, NY: Harper and Row). Knotek, Ed S. II (2008), “Convenient Price, Currency, and Nominal Rigidity: Theory with Evidence from Newspaper Prices,” Journal of Monetary Economics 55(7), 1301–1316. Knotek, Ed S. II (2011), “Convenient Prices and Price Rigidity: Cross-Sectional Evidence,” Review of Economics and Statistics 93(3), 1076–1086. Kocka, Jürgen (1984), “Patterns in Marriage and Mobility Intergenerational: Family and Class Formation in 19th Century Wesphalian Towns,” Journal of Social History 17, 411–433. Levy, Daniel and Andrew Young (2004), “The Real Thing: Nominal Price Rigidity of the Nickel Coke, 1886–1959,” Journal of Money, Credit, and Banking 36, 765–799. Liston, Mary (2009), “The Rule of Law through the Looking Glass,” Law and Literature 21, 42–77. McCloskey, D., (2000), Economical Writing, 2nd Ed. (Long Grove, IL: Waveland Press, Inc.). Miller, Ben and Michael Watts (2011), “Oh, the Economics You’ll Find in Dr. Seuss!” Journal of Economic Education 42(2), 147–167. More, Thomas (1997), Utopia (Mineola, NY: Dover). Mulligan, Casey B. (1999), “Galton versus the Human Capital Approach to Inheritance,” Journal of Political Economy 107(6), 184–224. Popper, Karl (2002), The Open Society and Its Enemies (Oxford: Routledge). Praagh, Shauna Van (2005), “Adolescence, Autonomy, and Harry Potter: the Child as Decision-Maker,” International Journal of Law in Context 1(4), 335–373. Radford, R. (1945), “The Economic Organization of a POW Camp” Economica 12, 189–201. Rockoff, Hugh (1990), “The Wizard of Oz as a Monetary Allegory,” Journal of Political Economy 98(4), 739–760. Rose-Ackerman, Susan (1996), “Altruism, Non-Profit and Economic Theory,” Journal of Economic Literature 34(2), 701–728. 25 Rowling, J.K. (1998), Harry Potter and the Philosopher’s Stone, Book 1 (London: Bloomsbury Publishing Plc.). Rowling, J.K. (1999a), Harry Potter and the Chamber of Secrets, Book 2 (London: Bloomsbury Publishing Plc.). Rowling, J.K. (1999b), Harry Potter and the Prisoner of Azkaban, Book 3 (London: Bloomsbury Publishing Plc.). Rowling, J.K. (2000), Harry Potter and the Goblet of Fire, Book 4 (London: Bloomsbury Publishing Plc.). Rowling, J.K. (2003), Harry Potter and the Order of the Phoenix, Book 5 (London: Bloomsbury Publishing Plc.). Rowling J.K. (2005), Harry Potter and the Half-Blood Prince, Book 6 (New York, NY: Arthur A. Levine Books). Rowling J.K. (2007), Harry Potter and the Deathly Hallows, Book 7 (New York, NY: Arthur A. Levine Books). Rubin, Paul (2003), “Folk Economics,” Southern Economic Journal 70(1), 157–171. Schooner, Heidi Mandanis (2010), “Gringotts: the Role of Banks in Harry Potter’s Wizarding World,” in The Law and Harry Potter, Jeffrey Thomas and Franklin Snyder, Ed. (Durham, NC: Carolina Academic Press), 261–271. Schwabach, Aaron (2010), “Harry Potter and the Unforgivable Curses,” in The Law and Harry Potter, Jeffrey Thomas and Franklin Snyder, Ed. (Durham, NC: Carolina Academic Press), 67–90. Sheftell, F., T. J. Steiner, and H. Thomas (2007), “Harry Potter and the Curse of Headache,” Headache 47(6), 911–916. Snir, Avichai and Daniel Levy (2010), “Economic Growth in the Potterian Economy,” in The Law and Harry Potter, Jeffrey Thomas and Franklin Snyder, Ed. (Durham, NC: Carolina Academic Press), 211–235. Snir, Avichai, Daniel Levy, Alex Gotler, and Allan Chen (2012), “Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity” Working Paper 12-69, RCEA. Stiving, M. and R. Winer (1997), “An Empirical Analysis of Price-Endings with Scanner Data,” Journal of Consumer Research 24(1), 57–67. Strömberg, David (2004), “Mass Media Competition, Political Competition and Public Policy,” Review of Economic Studies 71(1), 265–285. Tirole, Jean (1988), The Theory of Industrial Organization (Cambridge, MA, MIT Press). Thomas, Jeffrey E. and Franklin G. Snyder, Ed. (2010), The Law and Harry Potter (Durham, NC: Carolina Academic Press). Thomson, William (2001), A Guide for the Young Economist (Cambridge, MA: MIT Press). Tolkien, John R.R. (1993), The Lord of the Rings (London: Harper Collins Publishers). Tuchman, Barbara (1990), The March of Folly (London, UK: Abacus). Turner, J.C., P.J. Oakes, A.S. Haslam and C. McGarty (1994), “Self and Collective: Cognition and Social Context,” Personality and Social Psychology Bulletin 20, 454–463. Watts, Michael (2002), “How Economists Use Literature and Drama,” Journal of Economic Education 33, 377–386. Watts, M, Ed. (2003). The Literary Book of Economics: Including Readings from Literature and Drama on Economic Concepts, Issues, and Themes (Wilmington, DE: ISI Books). Weir, William (2011), “World of Hogwarts Frequently Mined for Studies,” Chicago Tribune, July 20, 2011. Woeste, Victoria Saker (2010), “It Is Our Choices that Show What We Truly Are: Moral Choice in the Harry Potter Novels,” Research Paper No. 10-02, American Bar Foundation. Young, Andrew, and Daniel Levy (2012), “Explicit Evidence of an Implicit Contract,” Working Paper, Bar-Ilan University.