We all know that magic started long ago. My theory is that all humans originally had magic and there were no such things as muggles. However sooner or later the first Squib was born and was possibly banished from the community the he/she lived in. Eventually more squibs would be born and possibly banished. The squibs eventually met and started a separate community. More squibs would arrive and new babies would be born. Wizards would sometimes be born in that community and they would hopefully not be thrown out (lets hope that the squibs were kinder than the wizards that threw them out). This community would be one of many that were started. Eventually some of the communities would forget about wizards and would make up excuses for magic. Those communities developed into muggle communities all over the world. There would have been times when wizards and muggles lived side by side as recorded in wizard history but they were many years ago.