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Halloween began as a pre-Christian Celtic festival of the dead. The Celts divided the year into four major holidays. According to their calendar, the year began on what is now November 1st. The date marked the beginning of winter. Since they were pastoral people (farmers and herders), it was a time when cattle and sheep had to be moved to closer pastures and all livestock had to be secured for the winter months. Crops were harvested and stored.
The festival observed at this time was called Samhain (pronounced Sah-ween). It was the most important holiday of the Celtic year. The Celts believed that at the time of Samhain, the ghosts of the dead were more easily able to mingle with the living, because at Samhain the souls of those who had died during the year traveled into the otherworld. People gathered to sacrifice animals, fruits, and vegetables. They also lit bonfires in honor of the dead, to aid them on their journey, and to keep them away from the living. On that day all otherworldly creatures were around, like ghosts, fairies, angels and demons--all things of legend and folklore.
Samhain became Halloween when Christian missionaries attempted to change the religious practices of the Celtic people. In the early centuries of the first millennium A.D. the Celts practiced an elaborate religion through their priestly caste, the Druids. As religious leaders, ritual specialists, and bearers of learning, the Druids were the Celtic equivalent of the very monks sent to convert the Celts to Christianity. In order to do this, they proclaimed their religious ceremonies evil practices, and branded their religious leaders as evil devil worshipers.
As a result of their zealot need to wipe out "pagan" holidays, such as Samhain, in 601 A.D. Pope Gregory the First issued a now famous edict to his missionaries concerning the native beliefs and customs of the peoples he hoped to convert. Rather than the impossible task of eliminating all native peoples' customs and beliefs, the pope instructed his missionaries to use them: if a group of people worshiped a tree, rather than cut it down, he advised them to consecrate it to Christ and allow its continued worship. In terms of spreading Christianity, this was a brilliant concept and it became a basic approach used in Catholic missionary work (thus the gargoyles and "Green Man" nature god masons and carpenters added to European churches).
Samhain, with its emphasis on the supernatural, was absolutely pagan. Druids were branded as evil worshipers of devilish or demonic gods and spirits. The Celtic underworld inevitably became identified with the Christian Hell. Celtic belief in supernatural creatures persisted, so the church made deliberate attempts to decree them not merely dangerous, but malicious. Followers of the old religion were branded as witches--you see where this is going, right?
The Christian feast of All Saints was assigned to November 1st. The day honored every Christian saint, especially those that did not otherwise have a special day devoted to them. This feast day was meant to substitute for Samhain, to draw the devotion of the Celtic people, and replace it forever. That did not happen, but the traditional Celtic deities diminished in status, becoming fairies or leprechauns of more recent traditions. And the rest, as they say, is history.