In the Harry Potter book series, a Muggle is a person who lacks any sort of magical ability and was not born in a magical family. Muggles can also be described as people who do not have any magical blood in them. It differs from the term Squib, which refers to a person with one or more magical parents yet without any magical power/ability, and from the term Muggle-born (or the derogatory and offensive term mudblood), which refers to a person with magical abilities but with non-magical parents. The equivalent term used by the in-universe magic community of America is No-Maj.
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Usage in Harry Potter
The term Muggle is sometimes used in a pejorative manner in the books. Since Muggle refers to a person who is a member of the non-magical community, Muggles are simply ordinary human beings without any magical powers and often without any knowledge of the magical world rather than witches and wizards. According to the author, J. K. Rowling, a quarter of the annual Hogwarts School of Witchcraft and Wizardry intake have two non-magical parents; there have also been some children known to have been born to one magical and one non-magical parent. Children of this mixed parentage are called half-bloods (strictly speaking, they are 'Literal Half-bloods'); children with recent Muggle ancestry on the one side or the other are also called half-bloods. The most prominent Muggle-born in the Harry Potter series is Hermione Granger, who had two Muggles of unspecified names as parents. A witch or wizard with all magical heritage is called a pure-blood.
In the Harry Potter books, non-magical people are often portrayed as foolish, sometimes befuddled characters, who are completely ignorant of the Wizarding world that exists in their midst. If, by unfortunate means, non-magical people do happen to observe the working of magic, the Ministry of Magic sends Obliviators to cast Memory Charms upon them causing them to forget the event.
Some Muggles, however, know of the wizarding world. These include Muggle parents of magical children, such as Hermione Granger's parents, the Muggle Prime Minister (and his predecessors), the Dursley family (Harry Potter's non-magical and only living relatives), and the non-magical spouses of some witches and wizards.
Rowling has stated she created the word "Muggle" from "mug", an English term for someone who is easily fooled. She added the "-gle" to make it sound less demeaning and more "cuddly".
A 'muggle' is, according to Abbott Walter Bower, the author of the Scotichronicon, "an Englishman's tail". In Alistair Moffat's book, A History of the Borders from Early Times it is stated that there was a widely held 13th century belief amongst Scots that Englishmen had tails. Ernest Bramah referred to "the artful Muggles" in a detective story published decades before the Potter books ("The Ghost at Massingham Mansions",in The Eyes of Max Carrados, Doran, New York, 1924).
Rowling herself was sued for using the word "muggle" in the Harry Potter books.
Notable Muggles
Other usages
The word muggle, or muggles, is now used in various contexts in which its meaning is similar to the sense in which it appears in the Harry Potter book series. Generally speaking, it is used by members of a group to describe those outside the group, comparable to civilian as used by military personnel. Whereas in the books muggle is consistently capitalised, in other uses it is often predominately lowercase.