Muggles' Guide to Harry Potter/Magic/Money

Overview
Wizarding money comes in three denominations: bronze Knuts, silver Sickles, and golden Galleons. There are 29 Knuts in one Sickle, and 17 Sickles make up a Galleon.

Extended Description
Wizarding money comes in coins only; there are no Galleon bills. As such, wizards have money pouches that they typically hang off their belts or under their robes rather than wallets. It is believed that the odd numbers of Knuts in a Sickle and Sickles in a Galleon is intended as a comment on British money before decimalization, with pounds, shillings, and pence being in an odd ratio to each other.

Analysis
There are a number of different calculations about the value of the individual pieces of Wizard currency. The author has stated in two separate books that a Galleon is worth about £3 or £5, and in an interview, that it is worth about £5. Internal evidence in the fourth and later books seems to match this. However, internal evidence in the first three books could suggest a value closer to £50 to £200 for the value of a Galleon.

In Harry Potter and the Philosopher's Stone, Hagrid instructs Harry to pay the owl 5 Knuts for his copy of the Daily Prophet. In Harry Potter and the Order of the Phoenix, Hermione pays an owl 1 Knut for the Prophet. If the price of the Prophet is in line with Muggle newspapers, that means that 1 Knut should be about £0.20 to £1.00 (the price of a newspaper being about £1.00 in 1991). This makes a Sickle worth somewhere between £5.80 and £30.00 and gives a Galleon a value of between £100 and £510.

It is also mentioned in Harry Potter and the Philosopher's Stone that Harry paid seven Galleons for his wand and that Ron was using his brother's old wand, the implication being that his family could not afford a new one. An expenditure of £35 (at £5 to the Galleon) is relatively small, but in retrospect does serve to indicate Ron's family's grinding poverty, which we also see in later books. Some have said that it would make more sense to have a wand, which is after all, usually a once-in-a-lifetime purchase, be valued at £350 to £1400. This would make it more likely that Ron's family could ill afford to buy a new wand for him, instead giving him Charlie's old wand. However, this is not necessary to the story and makes the Weasleys' lack of funds all the more striking.

In Harry Potter and the Goblet of Fire, Fred and George are selling Canary Cream tricks for 7 Sickles each. Based on the £50 to £200 per Galleon exchange rate, that would make the price of these £42 to £210 each. This is rather an excessive amount for a 15-second prank. If a Galleon is worth £5, though, then 7 Sickles would be about £2, a reasonable value for that joke. In Harry Potter and the Order of the Phoenix, the price of a butterbeer in the Hog's Head is given as 2 Sickles, which would be £12 to £60 a bottle by the pricing scheme in the first three books; at £5 to the Galleon, though, 2 Sickles would be about £0.60 ($1.20), a reasonable price.

In Harry Potter and the Goblet of Fire, Ron says he wished he had not purchased a dancing shamrock hat so that he might afford omnioculars for 10 Galleons. Harry purchases three sets of omnioculars for himself, Ron, and Hermione. If a Galleon were closer to £50-200, this purchase would be approximately £1,500 to 6,000. While Harry says Ron won't be getting a Christmas present for "about 10 years" this still seems to be an excessive amount to drop at once. Moreover, Ron implies he could have been able to afford it if he had not already bought the shamrock hat, which does not mesh with what we know of Ron's finances if the price is actually £500 to 2000 per omniocular set. On the other hand, if a Galleon was worth £5, Harry's purchase would be £150 – a bit more reasonable.

It is possible that the author simply had not worked out the conversion from wizarding to muggle money until time came to write the forewords of Quidditch Through the Ages and Magical Beasts and Where to Find Them, which came out after the first three books were written. It is also possible that the author, in writing those forewords, confused the values of the Sickle and the Galleon, as the apparent value of the Sickle in the first three books does tally with the stated value of the Galleon. It's certainly true that wizarding prices in the fourth and later books of the series match the values given in those two books, and the interview (with the exception of the price for The Daily Prophet). In any event, a value for the Galleon is explicitly given in the foreword to Fantastic Beasts and Where to Find Them, and that value seems to have been used for monetary conversions in all following books. One wonders if, having arbitrarily set the price of the Prophet as 5 Knuts in the first book, the author was at all concerned that this gave it a street value of £0.05 ($0.10). On the other hand, the use of magic will significantly distort the economy from what we muggles expect, because chattels can be created and changed to other chattels effectively at no economic cost. So it is entirely possible that the Prophet can still turn a profit at a cost of 5 Knuts (or even 1 Knut) an issue.

The difference in the price of the Daily Prophet between the first and fifth books can potentially be explained by means of information in Harry Potter and the Prisoner of Azkaban. In that book, Sirius Black, Harry's godfather admits to having sent Crookshanks to take the order of the Firebolt to the Owl Office, showing animals can do tasks like this in the wizarding world. This makes it possible that the owl that delivered the Prophet to Hagrid in the first book was a freelance owl belonging to no wizard and working for himself, and that the five Knuts was his courier fee, higher because of the need to deliver to a muggle address. Conversely, the same might apply to the owl who delivered the Prophet to Hermione. Being more likely to plan ahead, Hermione may have prepaid for a longer subscription to get a rate better than the single issue price, and the one Knut she paid was the owl's courier fee. In this case, the cost of the Prophet remains unknown; the one-Knut and five-Knut charges are delivery fee only, and the cost of the paper being delivered is unknown.

Questions

 * 1) What role does money have in the books, with particular reference to the Weasleys and the Malfoys?
 * 2) Are the Weasleys happier than Harry despite having less money?
 * 3) How does Harry view the money left to him by his parents in view of the years he has spent at the Dursleys?

Greater Picture
The economics of the Harry Potter universe are simpler than the Muggle world, and are also only vaguely defined, as is appropriate for the understanding of the intended audience for (at least) the first few books. It is apparently mostly a public sector economy with the Ministry of Magic the seemingly largest employer and supplier of services. However, the taxation, if any, to finance the Ministry is never mentioned.

Currency is based on precious metal coins minted by goblins requiring no fiduciary reserve. We learn late in the series that some materials, including food, cannot be produced by magic; we must assume that one of these materials is coinage. Gringotts Bank, which is run by goblins and arguably thus also acts as the mint, provides only two services that we see, the vault storage of valuables (mostly gold) and the exchange of Muggle money into wizard money. There is no apparent interest on deposits, and there seem to be no loans in the Muggle sense.

Although there is a wide variety of consumer goods available in Diagon Alley and Hogsmeade, there appear to be no factories or other large scale manufacturing capital in the Wizarding World. Products and goods are manufactured by individual artisans and small firms in a pre-industrial business model. With the use of magic the productivity of these artisans is sufficient to satisfy the demand of the Wizarding community. For example, Mr. Ollivander appears to work alone crafting fine wands. However, even working alone, indications are that he is able to provide wands for most of the 3,000 to 10,000 wizards in Britain. (We note that this is not an overwhelming number of wands to be producing. The top figure, 10,000 wizards, is based on the entering class at Hogwarts being 120 students, 30 in each of four houses, and thus 120 new wand-holders each year. If wands are replaced three times in the life of the wizard, that would be an average of 480 wands required per year, or roughly two per working day.)

Transportation and communication are regulated by the Ministry and in some cases owned and operated by the Ministry (such as the Floo Network, Knight Bus, and possibly the Hogwarts Express). However, most transportation and communication are accomplished by individuals without a public infrastructure. Examples include apparition (which is licensed due to associated risks when used by untutored wizards), Portkeys (also regulated due to the possibility for misuse), owl post and brooms.

Wealth and poverty are both plot themes in the Harry Potter universe, but how rich families (such as the Malfoys) became wealthy is not known with certainty (although it is likely that this wealth has been accumulated through centuries through inheritance). Most characters must work for a living, just like those in the Muggle world. Wages and salaries vary widely, and many characters are concerned about their finances. Underpaid workers, such as Mr. Weasley, struggle to support their families. Unemployable characters (such as Lupin) live marginal existences in poverty.

It is unknown how education at Hogwarts is financed, there is little mention made of tuition costs. The amount of control the Ministry seems to exert over Hogwarts in Harry Potter and the Order of the Phoenix could suggest financial support for school operations from the Ministry, but the very limited amount of control that the Ministry seems to exert on such things as appointment of the Headmaster ordinarily would argue against this. We note that students are responsible for the purchase of uniforms, books and class supplies, even if tuition is covered. Poorer families (such as the Weasleys) must buy second-hand to afford the expense. There is, we are told, some form of bursary available to the very poorest to enable them to attend Hogwarts; funds were made available to Tom Riddle, for instance. This appears to be done on a very informal basis, however, like much else in the Wizarding universe.