People often ask things like "Why do wizards still have money?" or "Why do wizards still have clothes shops?".

The answer to these questions is generally: because magic is a skill, and a difficult one at that, in which different wizards specialise in different areas and therefore have to trade for goods and services they cannot produce themselves.

But let's open the AU door and see where it takes us. What if the average wizard was competent in all the main areas of magic? Not necessarily a Dumbledore-level genius, but able to say, transfigure any given everyday object you could normally want, enchant their own broom, etc.

How do you think wizarding society would look?

 

Teach chimps that they can exchange shiny stones for food and they will start paying each other for sex. The question of why wizards still have money is utterly banal; money eases exchanges, that's all. That would not change even if your average ministry yahoo became a competent caster (the only issue there would be is one of counterfeiting, but as that is glossed over in Canon I feel comfortable doing likewise here; something something goblin gold, maybe).

As to what the wizarding economy would look like is quite the fascinating question. You explain away possible discrepancies in Canon between what magic does and the existence of Diagon Alley by stating that magic is hard and there is an inability of the average wizard to produce most of the goods a normal family consumes (or a normal basket of goods, for that sweet Econ 103 reference). But in reality that doesn't really need to be the case for a normal market to exist.

Imagine transfiguration was not as hard as it seems to be in the books. Assume your average wizard could learn to transfigure clothes to the point where they would be identic to tailor-made ones in around 100 hours of study. A quick google shows that the average person spends around a 100 pounds on clothes a month (women far more so than men but whatevs) 100 x 12 x 80 (life expectancy) = 96000. An average bloke can expect to spend an average of 96000 pounds on clothing during their lifetime, so each hour of transfigurations study yields a potential total savings of 960 pounds. As long as that number is above what you're earning in your normal job per hour (which it probably would be) reason says you should stop doing that and start learning transfigurations instead.

But here's the kicker, that rather portly number is entirely dependant on the price of clothing, in itself dependent on a series of factors, most notably production costs. But when production implies a mere wave of a wand and a hundred hours of study, you could expect prices in a perfectly competitive environment to radically decrease. Let say a big and fat hundredfold - a bit wild, but technology has done the same to some products, and technology ain't no magic.

Under the new prices the average person now would expect to spend (1 x 12 x 80 = 960) a bit less than a thousand pounds on clothing during their lifetime. Divide that by the hundred hours of study and now each hour yields a prospective saving of ten quid. Do you earn more than 10 quid an hour in your normal job? If so, it is literally not worth your time to learn transfigurations. It would be now more efficient to keep doing the job you are doing and use some of the money you earn to go to the shops.

Now, of course, these numbers are very rough, and the methodology is somewhat questionable, but it gives you an idea of where I'm going;

Niez's (very unscientific) law of Wizarding Economics:

The price of a good or service will depend in the ease of magicking it, or an identical substitute. Prices of goods easily magicked will tend to zero, prices of goods hard to conjure/create will tend to infinity.

According to this law, clothes would be dirt cheap, and magical artefacts invaluable. QED.

Spoiler: Rebuttals to objections that don't yet exist.

Objection 1. You're numbers are wrong. Yes, this is a very basic analysis of the question, but my econ days are long past. I also understand that when it comes to expected returns there is a lot of tomfoolery that needs to happen but screw spending time on that.

Objection 2. Supply. What about the supply function I hear you ask (I don't). Maybe demand could still exist for av. goods and services (not hard since demand is theoretically infinite), but sellers would not be willing to sell at the price where it made sense for people to buy. To that I would say that it all depends on the equilibrium. Some goods will indeed cease to have a market, for example cleaning. If learning cleaning spells literally takes two seconds there won't and cannot be a market for mops. But that is encapsulated by the tends to zero part of the equation. For goods whose prices have to be close to zero in order to create a demand for them, there evidently won't be a market, as no one is silly enough to sell their wares for free.

Objection 3. Trade. Yes, this opens up a huge problem when it comes to muggle/wizarding trade (basically ever wizard would be rich if they traded with muggles), which will either have to be addressed in a different post, or we can establish is banned by the ICW, if you are aiming for simplicity. That makes currency exchanges between muggles and wizards pointless, making the life of muggleborns quite hard, but something somewhere has to give.

Objection 4. Signalling, irrationality, Econ sucks, workers of the world unite... Yes, there would still be signalling pressures, so you could definitely see markets for goods that theoretically should not exist. My name is not Kahneman so the only thing I know about irrationality is what I see on my day-to-day life. I agree. Maybe, if you make it worth my while.

 

I think you've missed a rather large part of the analysis: the existence of universal compulsory education. The premise here is that wizards already know all these skills by the time they are 18. There is no question of the cost/benefit of acquiring the skills versus just paying for things because the skills are already acquired.

 

If people don't have to spend money on basic goods, I think wizarding society starts to resemble a sort of universal aristocracy. People will compete socially on the things they do have a scarcity of, like how rich people compete nowadays:

"my mother bought me a hippogriff coat for my 14th birthday, you're still transfiguring your own coat, how quaint".

Or people will purchase rare experiences, throw parties that require skilled magic to arrange, magic that even a competent wizard cannot always cast:

"We're having Transfiguration Mistress McGonagall at my party this weekend arrange a zero gravity swimming pool to play underwater Quidditch in, it's all the rage in Australia"

Just think of how rich 1st world people spend their money nowadays. Food, clothing and shelter are close to post-scarcity for much of the 1st world, so rich people compete with fancier food, fancier clothing, fancier traveling, fancier parties, etc.

 

The skills to conjure clothes perfectly and instantly, or the skills to make every good and service which they may ever need/desire? Because one of those answers will make me mad. @Taure

Now that I look back at your premise I notice an inconsistency that perhaps explains our divergence.

How I see it is that if you are able to conjure anything you might want, literally satisfy your every need instantly and at cost close to zero, you are not a Dumbledore level genius; you are a fucking God. Keep in mind that every need includes; healthcare, companionship, safety etc., even the ability to live forever (regenerative medicine might not yet be a market but it will be, and there is no reason why it would not be in HP). And every magical toy or trinket you might desire. You mention brooms, but you might as well say Elder Wand.

So I would say that yes, in a society where everyone is a God there is no markets, as there is no scarcity and no unsatisfied needs (demand), but I don't think there's much of anything else either. Every wizard would sort of be self-sufficient entity, without any need to interact with other people further than what human nature dictates. That could be an interesting story, but not really what I was going for.

Spoiler

Notice the slight of hand where I took ‘normally want’ and turned into ‘anything you might want’. That’s firstly to illustrate my point and also because ‘normally’ is vague as fuck. Is sex something that you ‘normally want’. I would say so, yes. Can a wizard conjure a magical blow-up doll that will sexually satisfy you to the same extent a partner or a prostitute might do? If no, then there you go. Magic is not easily able to substitute that service, therefore there is a market for it, and it ought to be more expensive than the market for more easily conjured up stuff.

 

I'd say that if a wizard can conjure all the basic necessities of life, all that will happen is that a premium will be attached to hand made stuff or things made by a person of note.

You see this a bit in the modern world with bespoke suits, hand crafted anything, original art vs prints etc.

There is the question of the creative aspect as well. After all, even if a wizard can conjure clothes, he still needs to know what they should look like, and that necessitates a fashion industry and someone with original ideas to sustain it. What is then the valuable part of the product is the IP, with the actual physical item being almost entirely worthless. I'd imagine that all items that could be made magically have the equivalent of copyright protection, and instead of buying an item, you buy the right to make that item yourself, same as you may be able to do in the muggle world once 3D printing takes off.

Then there is a question of what competence is. If a wizard can make serviceable items, but is not a Dumbledore level master, then it stands to reason that an external party can make the item better. That craftsmanship and expertise then attracts a premium above and beyond the new 'mass market' which is whatever you can comfortably conjure yourself.

 

Post-scarcity was pretty much what I was aiming at, subject to the limitations inherent to HP magic (e.g. no food, no gold). Because yes, HP wizards who have a mastery of all the core subjects up to NEWT level are basically gods compared to Muggles.

Of course, there's still a big gap between them and someone like Dumbledore. A "regular" competent wizard may be able to conjure a perfectly warm, luxurious sleeping bag, but Dumbledore can conjure hundreds of them at once. But that kind of difference doesn't really affect your ability to satisfy your own economic wants and needs.

So I was thinking, for example:

1. Would there still be a Ministry of magic?

2. How powerful would the Dumbledores of the world be vs. the common wizardry if the average wizard was at e.g. Auror level?

3. What jobs/professions would still exist?

 

@Taure , I'd recommend you consider TNG-era Star Trek.

Thanks to the replicator, they can make virtually anything they want. Everything from food to clothes to weapons can be produced by pushing a few buttons. And with the holodeck, they can create entire environments to visit, complete with fake people to interact with. As long as both are functioning perfectly, you theoretically won't need anything else, so why bother buying or selling everything?

Simple: neither the replicator nor the holodeck can fully replace every single thing. There are some things the replicator can't make at all, like latinum (which just so happens to be the currency Star Trek uses). What the replicator makes might end up being considered an inferior quality compared to the "real" thing (which is why Quark goes to the trouble to get real food and drinks for his bar, because while it's more expensive they also taste better). And that's not to mention things you can't really replicate and only have any value because they're real. And that's not to mention the fact holodecks can't really match visiting real places, and giving holo-people any real sort of sentience is a very recent development that almost always happen by accident, so visiting real places and being with real people is still very much the preferable option.

I imagine something similar would happen in such a Harry Potter universe. Some things probably can't be made at all, other things will always be done best if a trained professional is involved making it, and some conjured stuff will never be as good or as valuable as something not made by conjuring.

 

To answer the original question, I interpret the books to understand that magic does not have any clearly defined limits. The classes of Hogwarts raise the average student to a level where he or she could appreciate and understand the main branches of magic, but to master any of them seems to require independent study, as the books make no mention of graduate programs in, say, potions. I would imagine Professor Snape canonically got the job by demonstrating knowledge and ability, not because of a certification or degree. Even then, though, I doubt any masters of any given subject actually exist, magic seems like something that can't exactly be mastered or even fully understood. If, however, the average student graduated with a significantly higher level of ability, those who would be professors, in turn, would graduate with an even higher level of ability than that. The job market might innovate some, and there might be new careers for the highly skilled, but there's no guarantee of that. If they ended up going into jobs that really had nothing to do with their magical ability, I would still expect them to forget much of what they learned, even if they had more to forget. It seems no especially mundane job exists in the wizarding world, which fits the theory, so I highly doubt those would be eliminated, but an enchanter who makes magical trunks as a living would probably find himself out of a job pretty quickly, not that such a thing would matter; not that there's evidence of that being a job in the canon.
To return to my original point, in addition to there being 'Dumbledores' and 'Grindelwalds' of the world, who would likely be teachers, there would probably be those significantly above even them. There would quite possibly be new branches of magic, with the magical theory in the current Hogwarts curriculum being basic stuff, and highly advanced magic being what nerds would pursue. If the average person were capable of spell creation, I really can't imagine how new branches of magic wouldn't open up. Eventually the alternate universe world would make the canonical world would look like a world with only first-year magic.
On the subject of the Ministry, what seems most likely is that it would still exist. Even in canon magic seems to be decidedly on the side of the individual in a conflict between him and society. There seem to be fewer rules than there are ways to get around them, deception seems easier than verifying the truth, so we can assume that the government has the consent of the governed, and by extension that the populace isn't really hitting it out of the park in terms of critical thinking. The Prophet seems to be a perfectly serviceable propaganda machine that no one except the main characters even questions it. I would guess the average person is content to live comfortable life and doesn't really place a premium on truth or justice. That they were more capable of magic isn't really something that would alter that reality at all.

 

1. Hard to answer. I think so, because these natural aristocrats would be post-scarcity (so no need for welfare services or many government functions) but there would still be plausible wizard or creature threats, such as Dementors, Dumbledore-level wizards, devious dark wizards, creatures like Nundu, magical disease epidemics, etc. that might motivate wizards to come together. Would be much less extensive than the MoM, though, for sure. I'm doubtful there would be a Statute of Secrecy, honestly, because that requires a certain amount of government infrastructure to enforce on wizards who don't agree with it.

2. Still well-respected but not quite the forces of nature they are in canon. Additionally, extremely socially skilled/popular wizards who can command coalitions of wizards would be plausible counterweights to that level of wizard, so someone like Cedric or Bagman or Lucius Malfoy or Kingsley or Harry (all relatively popular/respected) might gain power through virtue of being cool and having a dozen wizards fight with him against a Dumbledore, which might make social 'combat' a very important part of such a society.

3. Many fewer jobs but still some informal professions. Many jobs might be like Artists in the Renaiisance-- especially skilled eccentric wizard-artists who are specialize in beautiful weird magic might work for popular, rich and well-connected wizards to make their parties or homes especially sought-after. An artist visits the Malfoys for a few years and decorates the grounds with her brand of half-male, half-plant hybrid hedges that are renowned for their funny conversation; a Dumbledore pays a visit to his old school and leaves a tribute of Everlasting Gubraithian Fire that will forever burn in the Great Hall; a (more skilled than canon) Harry Potter teaches a class on casting especially powerful and broad Shielding charms for aspiring adventures. Basically, bespoke goods/services/decorations become the sought-after, status-symbol, non-post-scarcity desired goods.


What ideas do you have @Taure ?

 

With each wizard as a pretty self-sufficient entity, shops and most public services (and thereby much of the government) seem unnecessary. While some trade/exchange would still occur, it would be infrequent and specialised enough that a whole shopping precinct would seem unsustainable.

Trade would probably just be done out of the residences of craftspeople. I hinted at this idea in Victoria Potter, in the summer between first and second year at the Bones' house. The Bones family is depicted as largely self-sufficient, growing their own vegetables and having their own cows. Mr Bones works out of his own home for just a few hours per week, and that small income is sufficient to fund what little day to day expenditure they have, such as buying the newspaper or treats such as shortbread from the nearby Muggle bakery. The money in their Gringotts vault is more or less static, barely touched, only used for unusual expenditures such as Susan's Hogwarts materials or the new protections they had to have constructed around the house in advance of Victoria visiting.

But importantly, Mr Bones is not an average wizard. He has inherited a large house with land and a vault with a comfortable amount of gold in it. He is also sufficiently talented as a craftsperson that he is able to perform relatively lucrative work even on a part-time basis.

Things would be different if all wizards were in the same situation as Mr Bones in VP. From a fanfiction perspective, I'd be inclined to significantly shrink the wizarding population if that were the case. I'd probably model the society along the lines of the Dresden Files, where you might have no more than say 3-4 wizards in all of London, and each wizard is depicted as a much more independent lone wolf. But then that would in turn dramatically affect the setting, to the point where Hogwarts was no longer viable.

Perhaps the compromise position would be going for a society with a population figure in line with the lowest estimates of the HP canonical population i.e. around 40 births a year. If you say that the average life expectancy of wizards is 120 years (again, a low estimate), you're looking at a wizarding population of around 4,800 and a Hogwarts population of around 280. That allows you to maintain Hogwarts as it was in canon. But I think it necessitates dramatic changes to wizarding society outside of Hogwarts - a much smaller government, a smaller Diagon Alley, etc. Which fits quite nicely with less need for trade/government.

 

I'm not sure there would necessarily be any changes at all. Do we even really have a sense of how self-sufficient the average adult witch or wizard is in canon?

I get the sense that even a below average 7th year Hogwarts student could lead a subsistence lifestyle. It wouldn't be that hard for the tiny magical population to just skim their food/clothes/shelter off the massive Muggle economy.

Competence in a single charm like Confunding, Obliviation, or Disillusionment would give an insane advantage over Muggle crime prevention methods. Surely Transfiguration or the Doubling Charm could produce undetectable counterfeit Muggle currency. As long as the magical population never gets too big, it wouldn't get noticed, just explained away as inventory shrinkage due to clerical errors.

In that view, the existence of the magical government/economy can be understood as more of a social game played by the population for status/entertainment. If you can get all your necessities from Muggles with a few swishes of your wand, life is boring. So people would start specializing and trading for magical goods/services (luxuries vs Muggle-produced necessities), forming a separate magical economy, and competing for status within it.

One could even see how once the economy is big enough, there'd be an incentive to separate entirely from Muggles. Trying to maintain secrecy would just be more trouble than it's worth, when equal or better versions of all Muggle goods/services can be produced within a specialized magical economy. It'd be cheaper to just have a skeleton crew of highly specialized Obliviators and laws against stealing from Muggles, than to deal with constant minor breaches of secrecy.

So that would make it not really about competence, but expedience. The average Hogwarts graduate might be technically able to subsist by stealing from Muggles, but that comes with a risk magical society deemed unwarranted. Therefore the less talented have to scrape by in the magical economy, "go native" as Muggles, or become criminals.

I think even if you raised the average level of competence to make wizards entirely self-sufficient, there would still be the same dynamic. It would be lonely and boring to lead a self-sufficient lifestyle on some Unplottable farm, so witches and wizards would socialize and specialize. Given one buys into the idea that the revelation of magic to Muggles is magical society's biggest existential threat, it'd be natural to expect the development of norms like the Statute of Secrecy along with administrative states to enforce them once magical society has reached a critical size.

In purely practical terms a shopping district like Diagon Alley is unnecessary. Everything could be delivered with Owls, House-elves, Portkey, Floo, Apparition, etc. Yet it's nice for a society to have a shopping district, where everyone congregates and someone can actually run into old friends and make new ones.

Final point: I don't think there's one deterministic path for society's evolution to follow. Magical birth control means, all things being equal, Muggle populations will usually dwarf magical ones. From what I've seen, fan-fics usually focus on this idea to explain why there are so many more Muggles than mages.

But I don't think this is set in stone. If magical society were some sort of matriarchal fertility cult with crazy pagan orgies, with most women pumping out a baby a year during their youth, they could probably sustain higher growth than Muggles thanks to the efficiencies of magic. That would lead to a drastically different dynamic than a relatively tiny magical population distributed sparsely through the Muggle world. I'm envisioning magical mega-cities with mile-high towers and skies blackened by broomstick commuters, all thanks to a different set of cultural practices.