The World of Harry Potter Can Teach Us A Few Things
The fantasy world of J.K. Rowling provides a both lessons and unresolved issues for our own "Muggle" affairs. by Bill Gee
(centrist)
Tuesday, March 29, 2011
Another favorite tale of my two year-old son is the much acclaimed Harry Potter series by J.K. Rowling. While he's too young to read, he likes to watch the movies over and over again. In order to better understand the so-called "wizarding world" that Rowling created and to be able to clearly identify the "good guys" and the "bad guys" for my son, I read all seven books more than once, and loved each one.
Being the economic academic that I am, I'm always interested how fiction writers tackle the issue of economics in the worlds of their imaginations. The economics of Harry Potter and his fellow witches and wizards is a relatively simple one compared to our own, but one we can probably learn from.
Daniel Levy, an economics professor at Emory University and Avichai Snir, a PhD student, did write a paper on the subject, which attempted to breach the subject of the entire "Wizarding" economy.
Commodity vs. Fiat Money
Fiat Money, or paper currency, does not exist in the world of Harry Potter. When one wants to buy something in Diagon Alley, or pay for tuition at Hogwarts School, one goes to "Gringotts", the Wizard Bank, travels to its dungeons to the family vault, and withdraws a handful of gold coins called "Galleons". What we do not see are the Goblins who run the bank taking handfuls of straw and spinning it into more gold, nor do we see Goblin "Loan Officers" offering a "low-low" rate on a personal line of credit. The money supply is relatively static, which makes the economy quite stable. A Galleon has relatively the same value as it did a thousand years ago, and life seems to go on just fine.
Gringotts
One might argue that Gringotts Bank is a monopoly, but then again, so is the Federal Reserve. When Fred and George Weasley needed a loan to start up their joke shop, "Weasley's Wizarding Wheezes" at the close of The Goblet of Fire, the thought of getting a bank loan didn't even cross their minds. What they needed was a person-to-person loan or benefactor in order to make their dream come true. They got the money from Harry Potter in the form of a gift, but we can assume that Harry could have also given the money as Preferred Stock, a loan, or bond to the twins without violating any Wizarding banking laws.
So how does Gringotts stay in business? After all, they have to pay for very elaborate security measures. In The Deathly Hallows, we learn that on one level, security involves the employment of a fire-breathing dragon! Since the bank is not in the business of making loans, buying securities, or obtaining overnight fees from the Ministry of Magic, we have to assume that the bank makes its money by charging fees to its depositors. We would imagine that the larger the "vault" and the more elaborate the security needed, the higher the fee the bank would charge.
When we think of the function of a bank, we immediately think of an institution like Gringotts. In other words, we assume that the bank's primary function is to keep our money safe so that we can withdrawal it when we need it, and we can also be assured that it will keep its value while it's there. It is reasonable for the bank to extract a nominal fee in order to keep our money safe, but it is counterintuitive for a bank to make loans on money that does not belong to them.
Slave Economy
The economy of Harry Potter's Wizarding World is not perfect. It is rife with governmental corruption and the more unpleasant jobs are performed by the various sub-human races. Both the House Elves and Goblins possess great magical powers themselves but we learn through a series of wars through the ages, these beings are magically bound to serve their human masters. While some masters like Dumbledore are magnanimous to the House Elves at Hogwarts, other masters like the Malfoys are cruel and abusive.
Levy and Snir suggest that parallels exist between the Elf and Goblin workforce and the American economy's practice of using immigrant and migrant labor to do the jobs that we in "polite society" do not wish to do. In the Harry Potter books, Hermione Granger attempts to advocate for the enslaved House Elves by attempting to free them, which is largely resisted by the Elves themselves. In The Goblet of Fire, When "Winky the House Elf" is given her freedom from her master, she feels dejected to the point of near suicide. So it is in our own economy that when advocates attempt to improve wages or get migrant workers to organize, their greatest resistance is among the workers themselves who are convinced that if they resist their overlords, they will be replaced by others who will not resist. When they are fired or deported as a result of attempting to stand up for themselves, they often blame those who were trying to help them rather than the employers who betrayed them.
Class Warfare
When we think of the division of labor, we immediately are drawn to distinctions of class, which the world of Harry Potter is not immune. Indeed, class warfare is what eventually occurs as the "Pure Bloods" led by Voldemort wage war against the "Half Bloods" and "Mugglebloods" who are led by Dumbledore and Harry Potter himself. At stake are those who feel as though they have the birthright to rule who are pitted against those who believe that leadership is earned through education and transparency.
As with the "real world", the issue of class warfare is not an easy one to tackle. Just as members of Dumbledore's Army struggle with their own prejudices and feelings of class superiority, we too struggle with what we feel to be work that is beneath us. For example, most of Harry's classmates see nothing wrong with the enslavement of House Elves and keeping the Goblin race (as well as many other magical beings) as second-class citizens. In our own world, many of us see no problem shopping at stores like Wal Mart even when we know that many of the products produced there are made in third-world sweatshops by workers making barely enough to eat. We are willing to turn a blind eye to the plight of these workers because their labor makes it possible for us to pretend to be prosperous.
As we can see, the economy of the fantasy world of J.K. Rowling is not perfect and that is one of the reasons why we find her world so compelling as both children and adults. The issues of money and banking are simple, straightforward, and a model we should probably follow. On the other hand, the issues of slavery, second-class citizenry, and class warfare are never really resolved in the texts as we continue to struggle with these issues in the "real world" ourselves.
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Wow! Do I detect a professional economist taking the first steps toward removing his support from a fiat monetary system? I hope so!
I'm a big Harry Potter fan, too, and I think Rowling did a very good job of bringing in a wide range of issues into her story in a surreptitious way, some of which you identified in your article. Here are a couple more observations.
Rowling's monetary units are quite screwy. According to Rubeus Hagrid, there are 17 sickles in a galleon, and 29 knuts in a sickle, meaning there are 493 knuts in a galleon. Try that conversion table on for size the next time you go grocery shopping! Galleons are gold, sickles are silver, and knuts are copper. This is a rather comical commentary on early English metal-based currency, where there were 240 pennies in a pound, 20 shillings in a pound, 12 pennies in a shilling, four farthings in a penny, 2 shillings in a florin, 5 shillings in a crown, 4 crowns in a pound, and where a shilling was the same as a bob. How anyone was able to conduct commerce using such screwy denominations is beyond me. You had to have some real, solid math skills in order to work in the counting house!
But while the metaphor is excellent, I doubt very much whether Gringott's bank would actually be able to monopolize the wizarding banking market by issuing such currency without also having a ministry-issued charter that granted such a monopoly.
If wizards are permitted by law to open a competing bank and issue competing currency, I strongly suspect that a new wizard bank offering denominations based on the decimal system would be able to take business away from the goblins fairly easily. Rather than attempting to mix different metal coins into a single system, it would be much easier to use decimal fractions of a particular metal coin. That way there could be separate divisions for gold, silver, and copper coins. Similarly, if we were permitted to use Euros as well as Dollars here in the U.S., we probably wouldn't try to pay for something with two Euros, two U.S. quarters, 14 Euro pennies, and six U.S. pennies. Such a transaction would be too confusing for most people. Instead, a particular transaction would more likely take place all in Euros (and their fractions) or all in Dollars (and their fractions).
Also, it's worth noting that one thing that makes the goblin bank so successful is the inherent, ruthless honesty of goblins, who consider it a personal insult for someone to suggest that they might help themselves to some of the "treasure" stored with them in order to loan it out at interest.
In fact, since the main concern with wizarding bank is in protecting stored treasure, I suspect the real competition would be for creating secure storage environments. This is not impossible, because as Hagrid points out, Gringott's is the safest place, apart from Hogwarts. In other words, a school is more secure than a goblin bank.
It also seems likely that many wizards keep at least some of their monetary holdings outside of Gringott's. In fact, the wizards who seem to despise the goblins the most are the death eater friends of Voldemort, who hate having to deal with their "long fingered friends". I wouldn't be at all surprised to learn, for instance, that Dumbledore had his own ways of protecting his own money without resorting to Gringott's. And I can certainly see the Weasley twins developing a second branch to their joke shop by selling secret purses with undetectable extension charms, like the one Hermione used in her purse to carry all their books, clothing, supplies, etc.
