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So now we have a problem. Is Rowling paralleling Hitler, with the concept of Jew or Muggle as fundamentally different, and does she support such a divide? The muggles are not allowed at Hogwarts, they are studied as a curiosity, and live separate. They are "other" if you will, the same way the Jews, gypsies, and others become "other" in Nazi Germany. If we are reading this as racism, then we must accept there is a racial divide in the magical world.
The muggles are not the wizards. Muggle is not a pejorative, but they are clearly and fundamentally beneath and different. IF we were to take this as demonstrating racism, then this issue would need to be addressed properly. As it is there are any number of things to make us thing otherwise. For instance, the Black family tree is clearly a symbol of class and hereditary roots - the fundamental of British hierarchy and class keep in mind. He is on the tree, and those who marry commoners are cast out like the Duke of Windsor. - JBI
A wizard is fundamentaly different from a Muggle in a way that one race can never be different from another, so you are right about that. However, it's clearly shown that the magical gene always predominates, so that nullifies any eugenic arguments based on that difference. It is clearly stated in book 2 that that there were so few wizards that they would have died out if they had not married Muggles.