Everyone generally supposes that 1 credit is roughly equal to 1 American dollar (although with recent inflation, that may require some adjustment :P), and some have even made fairly sophisticated analyses to show the correlation, often using easily-compared commodities such as food.
The resulting conclusions often leave some shaking their heads at the ridiculously low costs of starships and the like, but I had a brainstorm:
What if starships aren’t inexpensive, what if food is actually really expensive?
There are numerous logistical difficulties inherent to the Star Wars galaxy. Chief amongst them and key to our current topic is that each planet is really more like a single country or American state, sometimes like a single city or even smaller location. Pretty much all of one clime and generally rather culturally homogeneous with fairly uniform and limited exports.
There are some exceptions to this, however: Carida has a variety of climates, Corellia produces food as well as industrial goods and vehicles, Tatooine produces Force-sensitive podracers as well as sand, etc.
Contrast with Coruscant, which is the New York City of Star Wars. Rather than having any important physical export, it is a cultural center. It relies on a significant quantity of imports, as since the entire planet is given over to urban sprawl it has a decided lack of arable land, especially given its myriad denizens.
Effects of Trade and Development:
Since pretty much the entire galaxy is extremely interconnected and trades freely, each world would tend towards specialization. There’s no need to sacrifice land that could be used for mining to grow food if you can just import the food instead.
This means that you’ll have a few worlds that are self-sufficient, some worlds dedicated to farming, and many worlds that are extremely reliant on imports.
Ordinarily, this would mean that prices vary wildly between worlds. However, this brings up some interesting political problems.
Smaller, localized trade interests ferrying food between worlds within a sector have much lower costs than more spread out trade interests (such as the Trade Federation) that regularly ship food longer distances, such as from Outer Rim worlds to the Core. This means the “longer” traders have to increase prices, and if you try to balance it out, you’ll be undercut by the local interests.
What you end up with is highly-populated, non-agrarian worlds spending significantly more than other worlds, especially if they aren’t in a sector with enough agriworlds to supply food for the entire region.
At first, this wasn’t so bad. There were many new colonies, and worlds still had plenty of room to expand farms. However, as the galaxy developed, populations grew, worlds became more industrialized, and colonies became more distant. As the worlds became increasingly reliant on imported food, they became less concerned with growing their own, and prices began steadily rising.
And yes, if you haven’t guessed yet, I was one of the minority who found the prospect of trade talks in The Phantom Menace riveting.
The Economic Question:
Ordinarily, prices will naturally find an equilibrium. How much can you charge while still finding enough buyers, and how low can you go before you don’t make a profit?
If prices for food are very high on Coruscant, for example, wages will have to rise to meet that because people won’t work if they can’t make enough to feed themselves (or if they starve to death). However, that money has to come from somewhere. Consequently, businesses have to increase prices. What follows is an inflationary cycle, as the local value of the GCS (Galactic Credit Standard) becomes dramatically out of sync with its value elsewhere.
For example, you work as a farm laborer on Ukio and get paid 20 credits an hour.
You go to Coruscant for some unfathomable reason and suddenly you find that rather than costing you 10 credits for a good meal, it’ll cost you 40 (x4 conversion ratio for convenience). But if you work a job in a similar strata on Coruscant, you get paid 80 credits an hour.
This serves to give Coruscant a lot of monetary power over other planets because what’s cheap there is very expensive elsewhere. Likewise, it’s able to secure for itself a lot of military power since in “Coruscant credits” a warship will be much less expensive than in “Ukian credits,” to say nothing of the radically different tax schemes and revenues.
But still, Coruscant’s money has to come from somewhere, because it has to enter the economy. Coruscant has no major exports, and those that it does it would be hard-pressed to turn a profit on because it costs four times as much to produce. Places closer to agrarian worlds, with consequently lower food prices, could undercut their price fairly easily. This is a two-way street, however: If it’s cheaper to produce elsewhere, it can be more cheaply imported to Coruscant, allowing offworld producers to have lower prices and larger profit margins.
Therefore, a place like Coruscant can only really “export” two things: Information and IP.
Information (data and digital products like video games, computer programs, etc.) is perfect for this because it doesn’t cost anything to reproduce—the only cost is the labor to create it—and so it can be sold very widely, at market-acceptable prices.
Secondly, then you have the service economy: This would be maids, plumbers, etc. All self-contained since it would be prohibitively expensive to “import” this service, in spite of the dramatically increased cost of living on Coruscant (and subsequently inflated wages).
However, political pressure can shift this equilibrium dramatically, usually in the form of government intervention at the demand (whether for good or for ill) of its electorate, and as it stands, multiple factions wanted a change in the status quo.
Core Worlders wanted food prices reduced because they felt the price of living was too high, and why was food so much less expensive elsewhere, but not here? It wasn’t fair.
Agrarian worlds wanted to take some power back from the Core, and “free” themselves from what they saw as a pseudo-feudal system. The increased prices on Core Worlds wasn’t getting passed on to them in the form of profit, so they don’t care if the Core Worlders pay less.
Trade conglomerates were okay with the current arrangement, actually, since they were just moving the product. The end price or starting cost didn’t really matter, what mattered was the profit. However, why not? Perhaps they could turn things to their advantage.
Smaller trading interests were either ambivalent towards or leery of any sort of new arrangement, fearing that it could be turned against them when they were really in a pretty comfortable position.
The solution settled upon by the Galactic Senate was to fix prices. However, this would disincentivize traders to bring goods to Coruscant, since they knew they would not be able to break even, while profit margins would expand dramatically on worlds where the cost of transport was minimal.
Thus, the Republic added an extra step: It purchased all exported food at a fixed price, then sold it to various concerns at an increased base cost, minus a variable amount meant to equalize transport costs.
It was sold as a plan that paid for itself and would create “food equity” by equalizing prices across the board, with the promise that wages would adapt to accommodate the increased cost of living, but that was not the case.
While food prices did equalize, wages did not adapt as dramatically as were hoped and the plan did not pay for itself. While technically it drew no tax money, the increased price of food due to the Republic’s “operating cost cut” was, itself, a tax, as it increased the cost of the food.
In many areas, wages did go up along with the increased price in food, but usually not enough to offset both the now-greater cost of food and the now-increasing costs of other goods, which became more expensive as wages increased.
However, in the wealthy Core, little moved. With food being less expensive and the cost of living declining, many had their wages cut, but still others saw no change in their wages while the cost of food decreased. But simultaneously, Coruscant and other Core Worlds saw a resurgence of industry as they suddenly became competitive again now that wages were lower (which resulted in an increasing stratification of the local economy, with poor laborers forced into the lower levels by abnormally high housing prices).
Because of this resurgence, outlying worlds took yet another hit, resulting in significant unemployment across the Outer Rim, and thus an angry and desperate populace. Now the large corporate interests could easily move in and acquire cheap labor for mining interests, opening up more resources that had previously been considered too expensive to mine.
As for trading companies, the smaller outfits lost their edge now that prices were forcibly equalized. They lacked the capital and capacity to provide bulk shipments to the Core, but they could now be outcompeted by the bigger interests on the shorter runs.
The increasing supply of raw materials from expanded planetary mining did lower some consumer prices, but many of the benefits were not felt by the population at large since much of the supply went to expanding the rapidly growing corporate militias, which now had to handle many more strikes, uprisings, and incidents of unrest, as well as suppressing increased piracy that supplied the expanding black markets.
All together, this sets the stage for why everyone is unhappy around 40 BBY and why the outer half of the galaxy would be willing to secede from the Republic.