My series on NPCs in 1e/OSR campaigns began with a discussion of 'the other guys'; NPCs who aren't placed by the DM, rolled up as followers or members of a guild, or part of a random encounter. The NPCs implied to be part of everyday life by the various PHB and DMG entries on henchman, etc.
It continued by examining the potential size of standing armies and such, which is mainly fighter followers.
Then I went on to discuss how these various NPCs could impact the economy.
While I mention followers, and leaders, and kings, and such my focus is really still on the 'other NPCs' because their existence, numbers, and levels mean a lot to how your world looks and works. Yeah, I know, it may seem a bit odd to focus so much energy on the elements of a campaign that are designed as background, but the wallpaper on your computer screen is important, too. Consider these articles a 'jumping off point' for a discussion.
This time, let's talk about what these leveled NPCs say about magic and magic item sin the campaign.
As we saw earlier if you follow the general numbers we can assume from the entries on henchmen in the DMG you will generally not have very many NPCs above 3rd level and very few of 7th level or above. Indeed, in the sample kingdom of about three-quarters of a million humans there is about a 17% chance of having a single 10th level magic-user. Expanding the math a bit you need a population greater than about 2 million to have a 17% chance of a 12th level magic-user and if you want to make sure you have at least one mage like that 'floating around' then the base population needs to be, oh, 8.2 million+.
What this implies is that there are not a lot of guys making magic items in the hinterlands. Large empires are the source of all those wands and holy avengers. Where a lot of adventures take place, the edge of civilization, isn't where these things are manufactured.
So why is it where they are found?
The very excellent blog The Hill Cantons (which you should be reading) describes this better than I can here and here. Essentially, a lot of the assumptions behind Greyhawk (and thus the original rules) are very Dying Earth/post-apocalyptic/lost glory based. While there are powerful people roaming around the world is full of the ruins of past glory beyond the ken of current dreamers....
The magical worldview that flows from the '1 in 1,000 NPCs has levels' assumption is that spell casters are rare and magic items are rarer. The vast majority of rural NPCs will never have met a magic-user of any level and there are probably less than 3 people in the kingdom that can cast Fireball or Lightning Bolt. This seems to mean that having a spell cast for you will probably be expensive if you can find someone who can cast it. After all, there are probably just a dozen mages who know Identify in the entire realm; half of them are above 1st level and will charge more since the spell is more accurate when cast by higher level magic-users.
It also means that the only clerics of high enough level to Resurrect (if any) will be specifically placed by the DM, limiting who can be raised as well as where and why. Magical cures will be far from common; only 6 clerics are high enough level to cast Cure Disease which means that even with the help of the 30 or so paladins plague can still easily sweep the land. Lay doctors and barber-surgeons will certainly be needed since there is only 1 leveled cleric per 9 villages.
On the one hand, I find this fairly refreshing, actually, because while the assumptions and implications may be about faded glories, this also means that the DM can determine exactly how common magic items are. How? well, the 'other NPCs' aren't going to have a lot to do with this; only NPCs specifically placed by the DM will be in the magic item creation business. There are just enough 7th-9th level magic-users and clerics around to justify potions and scrolls without an on-universe explanation for why +2 daggers aren't for sale from street carts (unless, of course, you want that). You can still use the threat of plague and famine as a strategic plot device, 0-level mooks are still a credible threat, etc.
On the other it really demands that the DM actively explain where magic items come from, why they are where they are, and maybe even why they were made. A strong argument could be made that hiring a spell caster would be hideously expensive and spell components might be, as well. And the party might be hard-pressed to convince the only cleric in 1,000 miles capable of casting Raise Dead that their companion deserves the spell being cast on him.
Further, this sort of 'density of characters with levels' puts the player characters into an interesting position - until about, oh, 5th level they will sort of 'blend in'; there are a fair number of NPCs in that range. From 5th, though, they really start to stand out and probably start to become famous and become a Big Deal at 7th+. Name level? They are now in a class of their own. All this fits smoothly into the idea that PCs are exceptional in how far they can go. There may be 150 magic-users in the kingdom, but the PC will rise to heights the others can only dream of.
Suddenly we can understand why PCs aren't unusual enough to be remarkable at 1st level but special enough at 9th to attract loyal followers. And while useful this analysis doesn't solve any of the real problems a DM faces in his campaign - the who, what, why, etc. of magic item creation, for example.
Next time I will discuss how to change these numbers to change the campaign.