May the Fourth be with you

by | May 4, 2020

In honor of Star Wars Day, we’re going to talk about some financial lessons we can learn from Star Wars, starting with Episode 1. And — warning — there may be some spoilers.

  1. Fiat currencies have risks: You may or may not remember the scene from Star Wars: Episode I — The Phantom Menace; where Qui Gon Jinn and little Anakin’s owner, Watto, are bartering over the cost of a ship on the planet Tatooine.

Qui Gon: I have 20,000 Republic dactaries.

Watto: Republic credits? Republic credits are no good out here. I need something more real.

     2. Fiat currencies have risks: The dactaries are a “fiat currency.” That’s money that holds no intrinsic value but is valuable only because the government says so — as in the case of the U.S. dollar.

During inflation, fiat money can become worthless. That’s what has happened to Venezuela’s bolivar, which is a stark example of how fiat currency is not always the best way to go.

       3. ‘Printing money’ isn’t as great as it sounds: In Episode III — The Revenge of the Sith, Palpatine becomes the evil Emperor who manipulates Anakin to join the Dark Side and become Darth Vader.

Emperor Palpatine makes it mandatory for all of the planets in the galaxy to begin using the Galactic Credit Standard, now called “Imperial Credits.” This is similar to when a nation takes control over another and forces it into using the winner’s fiat currency.

 4. ‘Printing money’ isn’t as great as it sounds: With control over the banks, Palpatine is able to basically print his own money. This is how he could afford to build the Death Star and all of the other ships that were necessary for maintaining control.

According to Zachary Feinstein, an assistant professor from Washington University of St. Louis, the Death Star would have cost the equivalent of $419 quintillion U.S. dollars ($419,000,000,000,000,000,000) based on the estimated cost of materials estimated from an analysis of the Star Wars economic system. Wow.

But printing money out of nowhere causes inflation. As I mentioned earlier, inflation of fiat currency can seriously damage an economy, leading to a depression.

The Star Wars galaxy may be far, far away, but its economic system hits close to home.

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