Wizard Economics

[Alexander]

No: HPFGUIDX 33952

  Greetings!

P.S. I'm writing it here because it should be read before
the rest of the letter. Everything below is not a PoV by any
approximation - just a sequence of thoughts that I was
writing down. So please be patient with the text - it's not
a statement, but rather a loosely connected bunch of ideas.

  Some thoughts about Wizarding World economics.

  From what we know already, economics of WW is not like
muggle-world economics. First of all, they have no
institution that would serve the role of muggle banks
(Gringotts is NOT a bank by muggle definition). Currency of
WW is solid gold standard - something muggles refused long
ago.

  It's difficult to understand just how that economy works.
Let's try to investigate, though.

1) Foodstuff.

  Yes, it's not funny. Just tell me - do you believe in lots
of wizard-farmers who grow all that foodstuff that Molly
Weasley is so good cooking with? No, that would be nearly
senseless. We can reasonably assume that most of foodstuff,
clothing (at least fabrics), and most other "mundane" things
come directly from muggle-world.

  (Those who believe in wizards conjuring up tons of grain -
answer a simple question: isn't it simpler and cheaper to
conjure bread instead of grain?).

  But this means that Wizarding World has a very high level
of economical interaction with Muggle World!

2) Currency Exchange

  Another thing that supports this point of view is the very
_existence_ of fairly constant currency exchange rate. As
any economist will tell you, this is only possible if
there's a considerable level of goods exchange (in BOTH
directions). Assuming that Wizarding World is completely
separated from Muggle World, we have to assume that most of
economical activity in WW is limited by WW borders and does
not concern MW. But then currency exchange will be an ad-hoc
deal, not a "default" service of Gringotts or whoever else.

  Of course, there's quite a flow of muggle currency with
all those muggle parents buying sorcery schoolbooks for
their wizard children. Still, this is NOT enough to explain
the fact.

3) Gold, Silver and Copper

  All three metals are no longer currency in modern Muggle
World. They can be bought and sold (with certain limits, of
course), and their price varies due to various reasons. But,
what's most important, amount of all three metals in Muggle
World economy is many times greater than their amount in
Wizarding World economy!
  Anybody familiar with demand&supply rules will know what
it means - exchange rates are dictated not by economical
exchange between Wizarding and Muggle worlds, but by Muggle
prices on all three metals.

  A solution? Let's see.

  Indeed we know that exchange rates are not favourable to
Wizards. Wizarding currency is simply cheap - a sum that is
great for a Wizard is modest for a muggle of similar
relative wealth.

  This definitely does simplify matters. Indeed, Gringotts
currency exchange service is nothing more but a precious
metal trading company from the point of view of Muggle
World. There's no trouble with getting any amount of Muggle
currency to make your purchases, if you have adequate amount
of Galleons.

  The only trouble that still remains is the foodstuff and
fabrics. They are still most likely made by muggles and sold
to Wizards for _muggle_ prices. But then they should be
really expensive!

  They are not.

  What have we got? That there ARE wizards who are conjuring
all that wheat, salt and everything?

  Definitely a subject for further research.

Sincerely yours,
Alexander Lomski,
(Gryffindor/Slytherin crossbreed),
always happy to throw weird ideas into the community.

    - Why does everything always go wrong?
    - Because when it goes right, we don't notice.
        Sergey Lukyanenko, "Dances on the Snow".