In Return of the Jedi, Emperor Palpatine sets a trap for the Rebel Alliance at Endor. However, one thing that has always bothered me about this plan is that if Palpatine had simply waited for the second Death Star to be completed, he could have crushed the Rebellion with minimal effort. So why the urgency? In canon, it’s reasonable to assume that Palpatine was simply impatient and arrogant, believing he had masterminded the Rebellion’s destruction in one swift stroke — a plan that disastrously backfired. But I have an alternative theory: the Galactic Empire was flat broke.
First, let’s justify this exercise. The economics of Star Wars isn’t necessarily compelling to anyone but the most hardcore econ nerds. However, by examining Star Wars through an economic lens, we can better understand economics in our own world and the effects of totalitarianism on it. This can even provide some insight into how we should expect strongmen and authoritarians to behave once they gain control of the economy.
We should also acknowledge that George Lucas deliberately avoids giving us much information about the economy of the Star Wars galaxy, and for a good reason: it’s boring. Nobody wants to watch a movie about monetary theory, labor markets, or unemployment rates unless such topics are treated as an aside. Even films like The Big Short, which are explicit about economics, need to be dressed up with lots of sex and swearing to be compelling. So, Star Wars is light on explaining its economic system, meaning this entire analysis is based on rational assumptions rather than hard evidence from the Star Wars galaxy.
Even so, economics does exist in Star Wars. Han Solo charges Luke Skywalker 10,000 credits to be smuggled to Alderaan. In The Bad Batch, the new Galactic Empire replaces the Republic credit with the Imperial credit as a means to control and monitor people. In The Phantom Menace, the crisis on Naboo is a dispute over the taxation of outlying trade routes. All these economic interactions show that the Star Wars galaxy’s economy functions similarly to our own, particularly the U.S. economy in the late 20th century. That late 20th-century aspect is important because the economy of 2024 has changed substantially from that of 1977, but the Star Wars galaxy is still anchored in George Lucas’s perceptions of economic behavior in the 1960s and 1970s. This means that in the Star Wars galaxy, there’s no cryptocurrency, NFTs, or overly financialized knowledge economies, but an economy based on trade, manufacturing, and the exchange of goods, perhaps more so than services, much like the American economy of 1977.
With these assumptions in mind, we can piece together an economic story of how the Galactic Empire ended up being flat broke by the time of Return of the Jedi and why this story makes Palpatine’s decision to force a confrontation with the Rebellion at that moment even more compelling.
Let’s start with the late Republic and the crisis at Naboo. We know that the crisis begins over a tax dispute, and although we don’t get many details in the movie, it likely involved the Trade Federation charging higher rates for the import and export of goods and services that Naboo refused to pay. This dispute already shows us that the galaxy was heavily privatized and probably economically unequal: the rich were getting richer, and the poor were getting poorer, as mega-corporations muscled through policies favorable to them. The galaxy likely had an economy that grew relatively well on a macro level, but prosperity was concentrated in the hands of the wealthy, while everyone else struggled to get by. Sound familiar?
This story of inequality helps us understand how the Clone Wars began. When so many people are excluded from economic prosperity, they have little stake in the system and are either willing to rebel or, at the very least, do little to protect it. Furthermore, Palpatine’s political machinations somehow convinced the galaxy’s poorest to join an alliance with the mega-corporations representing its richest — the Confederacy of Independent Systems. This might seem odd, but it’s compelling when you consider that the modern American Republican Party is made up of business elites and poor, often rural, working-class whites. In addition, the Galactic Republic was probably heavily in debt to its rich, having privatized most essential services to corporations, and lacked the political will to establish an equitable tax structure. In other words, taxes were cut for the rich while public services were deprived for the poor.
The galactic economy during the Clone Wars was likely a time of incredible strain. Civil wars are economically traumatic, not only because economies shift to a wartime structure but also because a significant part of a nation’s — or in this case, galaxy’s — territory, resources, and labor is suddenly carved away. The Separatists would have taken with them the capital of the Banking Clan, the labor of the Techno Union, and the trade-policing powers of the Trade Federation, along with huge amounts of planets, resources, and populations. The net galactic effect would have been shattered supply chains, sparked rising (if not skyrocketing) unemployment, produced a stock market crash, and eventually what would qualify as a galactic recession or depression.
Compounding these economic woes was the Republic’s decision to fight the Clone Wars using professional clones, which themselves cost extra money as they were purchased from Kamino. So, during the Clone Wars, not only was a galactic recession taking place, with accompanying inflation caused by the sudden loss of key resources and supply chains to the Separatists, but unemployment likely remained very high. Moreover, the Republic was probably borrowing heavily to fund the war rather than imposing more taxes on an already strained population. The Republic lacked the political will to impose hardship on its citizens, as senators feared losing their next election and knew they could borrow and outsource their way through this massive civil war. These tactics worsened the galactic economic situation and weakened the legitimacy of the Republic. Given that this was exactly Palpatine’s goal, it’s likely that he encouraged policies designed to weaken the galactic economy further, particularly in the eyes of its economic elite.
By the time the Clone Wars ended with Darth Vader’s assassination of the Separatist leadership, the Republic was probably experiencing hyperinflation, double-digit unemployment, and weak (if not shrinking) economic growth overall, measured by what we might call the galactic gross domestic product. There would be no immediate peace dividend, as clone troopers may not have been paid at all, so when they were demobilized, they wouldn’t have brought a surge of demand and wages to revitalize the economy like returning GIs did for the American economy in the 1940s.
Luckily for the Star Wars galaxy, Palpatine had a plan. With his declaration of a Galactic Empire, he had an opportunity to restart the system. One of the first things he does in The Bad Batch is replace the Republic credit with the Imperial credit. While this is framed as a move to establish a surveillance state, in the real world, regimes sometimes do this to replace a discredited currency with a new one. Even democratic regimes, like Turkey’s in the 2000s, have done this to combat hyperinflation by introducing a new currency.
When a government does this, it can set the exchange rates between the old and new currency at whatever level it sees fit. It can also change those exchange rates based on the type of exchange taking place. The Empire could have told all those holding Republic debt that they would only be able to exchange their credits at a rate favorable to the Empire — perhaps 1,000 Republic credits for one Imperial credit. In one stroke, the Empire would have been able to shrink its inherited debt from the Republic to something much more manageable. Bondholders of old Republic debt would still be paid, ensuring there was no fiscal or banking crisis sparked by sudden debt cancellations. But with a new currency in place, inflation would be reset too. At a stroke, Palpatine likely solved the late Republic’s monetary crisis.
Another step necessary to restart economic growth was addressing unemployment, which Palpatine did with a massive military buildup. By disbanding the clone army and replacing it with a huge Imperial military, Palpatine provided jobs, basic wages, and three square meals a day to the unemployed masses, all while consolidating his political power through them. We see this in Solo, where Han Solo just walks up to a recruiter and immediately joins the Imperial Navy. This would have brought unemployment down to more manageable levels, particularly in sectors and on planets crucial to Palpatine’s ambitions. Meanwhile, loyalist contractors would have been awarded lucrative construction contracts to build the massive Imperial war machine, providing jobs and stimulating growth. It was essentially a peacetime version of America’s buildup during World War II that ended the Great Depression.
This period in the early Empire probably resembled America’s 1950s, when anyone who wanted to work could do so, and even the poor found their wages increasing faster than inflation. Everything seemed to be on the up and up. But military expansionism can only do so much to sustain an economy.
It’s one thing to restart the economy with a massive military buildup, but it’s another to force the economy to sustain that vast, expanded military. During the early years of the Empire, it was easy to find work associated with this military buildup. However, as the first Death Star neared completion, the strains of this buildup likely became clear. The military buildup was consuming resources and labor that would otherwise be used by the civilian sector, and the galactic economy was becoming increasingly dependent on government spending to maintain growth. None of this particularly mattered to Emperor Palpatine, who, like most authoritarians, saw the economy as a means to an end rather than an end in itself. However, with the galactic Senate still required to rubber-stamp the budget, Palpatine likely faced some constraints on uncontrolled military spending. In fact, we know that the first Death Star had to be completed in secret and off the books so that the Imperial Senate wouldn’t start a political controversy that could disrupt Palpatine’s still-consolidating political power.
By the time of the events of Andor, the economy was probably close to what we would describe in our own world as overheated. There were too many government contracts and too much money chasing too few goods, resources, and workers. This situation was generally good for some workers and certainly for the corporations on the receiving end of the contracts, but it also meant that prices were starting to creep up again, and inflation was returning as a major issue. Again, none of this particularly concerned Palpatine, but it probably would have concerned the still-elected senators. This situation also helps explain why smuggling would start to make a comeback, despite the nominally overwhelming power of the Imperial military. When people want something, they’ll find a way to get it, and the black market typically delivers goods and services that the formal market, for whatever reason, cannot. Hence, even Han Solo is in the business of smuggling relatively ordinary people like Obi-Wan Kenobi and Luke Skywalker.
However, it is the completion of the first Death Star that really sets the Galactic Empire on the road to fiscal crisis. When the first Death Star was completed, the Emperor almost immediately dissolved the Senate, an act that, at a stroke, allowed him to control the economy by fiat. There were no more constraints on the Imperial budget, and although it’s hard to say how many Star Destroyers were ready to go by the time the first Death Star was completed, we do know that Star Wars sources claim there were up to 25,000 Imperial-class Star Destroyers at the height of the Galactic Empire’s strength. With each ship holding around 47,000 people, that’s about 1.175 billion individuals on Star Destroyers alone, not including the Imperial Army and all the other support ships that would have also made up the Imperial military. In other words, by the time the Empire had reached its apex, a significant chunk of the galactic economy had been militarized.
Without the constraint of the Senate, Palpatine rushed to replace the first Death Star with the second one in much shorter order. Not only was the second Death Star larger, but it probably consumed even more of the galaxy’s resources and wealth in its fast-paced construction of only a few years. This would have strained the galactic economy even further. Meanwhile, the Rebel Alliance was becoming better at attacking trade routes and interdicting ordinary business related to Imperial military activities. Suddenly, lucrative government contracts were being delayed or interrupted, and a galactic economic crisis was budding.
Palpatine and the Imperial government could have, of course, resorted to what authoritarians often do: price controls, rationing, and even printing new coinage. But none of those would have solved the underlying economic problem, which was that too many resources, workers, and capital were locked up in the Imperial military buildup, which seemingly had no end. Military weapons usually sit idle until they are used, and then they need to be replaced, but they don’t improve the ordinary lives of civilians. Look at North Korea, where military spending crowds out anything in the civilian sector. Without a vibrant civilian sector to innovate, improve the standard of living, and offer new technological options for the military, the military eventually begins to stagnate.
Thus, by the time of the events of Return of the Jedi, it’s probable that Emperor Palpatine had driven the galactic economy right off a cliff in his mad pursuit of power. Although inflation might officially be under control due to Imperial price controls and the Imperial military’s willingness to use force against merchants who raised prices too fast, that would have done nothing to alleviate the shortages of basic goods that were being pulled into the service of the Imperial military. Food, fuel, medicine, and basic resources like carbonite were probably quite scarce for most civilians on most worlds. All of this would have led to discontent with the Galactic Empire’s rule, which, after all, had enjoyed a brief period of legitimacy because it had solved these problems in its early years. The Galactic Empire on many planets probably looked like the late Soviet Union, where an overwhelming military presence contrasted starkly with a shortage of basic consumer goods and services.
The second Death Star was supposed to solve the crisis of legitimacy that was emerging from this economic challenge. Once another planet destroyer was completed and the Rebel Alliance’s main fleet had been destroyed in a set-piece battle, Emperor Palpatine probably calculated that he would have gotten himself at least another decade or two of compliance from the galaxy before facing another serious political threat. The economy could have essentially gutted, as it has in places like North Korea, Venezuela, and Iran, but so long as Palpatine had the ultimate power in the universe in the form of a monopoly of violence through the Death Star, none of that would have particularly mattered as he tried to achieve immortality through the resources afforded to him by control of the galaxy.
Thus, Palpatine’s rush to complete the second Death Star and trap the Rebel Alliance, combined with his corrupt military machine looting the galaxy’s economy, made it only a matter of time before a fiscal crisis became a political one, and he would be unable to even make payroll for some of his Imperial forces. This prospect would have created a very real threat of Imperial troops defecting en masse to the Rebellion or starting their own secessionist movements.
As nerdy as this analysis may sound, looking at this through the prism of Star Wars helps us understand how regimes like Iran, Syria, North Korea, Venezuela, Russia, and maybe one day China view their economies: the economy is a means to an end rather than an end in itself. When political leadership has alternative ideological goals, things like the standard of living, inflation, unemployment, and gross domestic product are just tools by which they manage the path toward these goals. Russia’s Vladimir Putin didn’t seem to mind very much at all that he essentially gutted the Russian stock market by launching his invasion of Ukraine in 2022. Venezuela’s Nicolás Maduro hasn’t seemed to lose much sleep over running the oil-rich country’s oil industry into the ground by adopting a confrontational stance with the United States and his own country’s opposition. And Iran has shown no disinclination from interfering in neighboring countries’ affairs and confronting Israel and the United States military, even though by doing so, it has been economically isolated and unable to improve its standard of living for many years.
And no, I’m not arguing that Star Wars should include more economics in its content. I think the franchise has some serious soul-searching to do, but none of that has much to do with the way it portrays economics. Keep it economically light, Disney — there’s no need to explain Imperial monetary policy to anybody in season 2 of Andor. But I hope you enjoyed reading this, and I hope it gave you some insight into how the political economies of authoritarian systems work.
