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