finance, money, personal

Private Finance Vs. Public Finance

Private Finance and Public Finance – A Comparison

Private finance refers to ‘individual finance’ whereas public finance refers to ‘state’ finance. Keynes has said that “What is true of the individual may or may not be true of the state as a whole. The similarities and dissimilarities between private finance and public finance are therefore, examined below.

Similarities:

The goals and methods of private finance and public finance are more or less the same.  Both have to satisfy human wants with limited economic resources, controlling wastage. That is the objective and rationality in their budgets. Individuals as well as the governments are engaged in economic activities viz. consumption, production, exchange, growth etc. They receive income and make payments. Both borrow and invest funds. Both contribute to the national product.

Dissimilarities:

Private Finance

Public Finance

Objective

Satisfaction of one’s own wants

Satisfaction of societal wants

Rationality

Optimisation for oneself

Optimisation for all

Motive

Personal benefit  (profit)

Social Advantage (service)

Approach

Individual adjusts his expenditure to his income

Dictum: cut your coat according to cloth

Government adjust its income to its expenditure

Resources

Small and less varied

Enormous and highly diverse

Methods

No force possible

Coercive Methods adoptable

(e.g. using the axe of tax to chop off the Manhattan of incomes for ‘equity’ sake)

Character

Voluntary

Compulsory

Secrecy

Budget is secret

Budget is open and transparent

Public debate and criticism

Budget

  • Surplus Budget is natural and acceptable
  • Smaller budgets of a week or a month are also executed
  • Deficit Budget is common and healthy
  • Normally big budget, for a financial year

Right

No one has right to print currency

Government has currency right:

Fiat money (fiat=order)

Scope

Limited

Vast