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The term derives from the formerly widespread superstition, present in many European folk traditions, that such malformed creatures were the product of the sinister influence of the Moon on fetal development.
Mooncalf is used as a derogatory term to indicate someone is a dullard, fool or otherwise not particularly bright or sharp. For example, W. C. Fields in "The Bank Dick" (1940) advises his prospective son-in-law to avoid being a "mooncalf" by buying shares he has been beguiled into believing are worth much more than the proffered price.
Mooncalf is also the name of a species of magical creatures in the world of the Harry Potter series. It is described in Fantastic Beasts and Where to Find Them as a shy, nocturnal creature with a smooth, pale grey body, bulging eyes and four spindly legs with large flat feet. Mooncalfs perform dances in the moonlight, and are apparently responsible for crop circles.
Wilfred Maxwell, narrator and protagonist of occultist Dion Fortune’s 1938 novel, The Sea Priestess, refers several times to a mentally retarded character who falls into the sea and disappears as a “mooncalf.”