Similarities Between Public Finance And Private Finance

Public finance is the study of income and expenditure of the government and also of the policies and principles relating thereto. On the other band private finance is the study of income, debt and expenditure of an individual or other non-government bodies. In some respects, both are similar but in most of the cases, these two differ from each other.

Similarities Between Public Finance And Private Finance

We shall now make an attempt to point the similarities between private finance and public finance in the following lines.

(1) Maximum Advantage. The objective of both is the same i.e. to secure the maximum satisfaction out of the expenditure. An individual aim at securing maximum utility out of his expenditure by following the various principles of economics, the government, in the same manner, likes to get maximum social advantage out or its expenditure and follow the same principles of economics.

 (2) Precedence of income. Income must precede the expenditure in both the cases. In private finance, an individual cannot spend unless be earns something. Similarly, revenue has to be raised before the expenditure can be met.

 (3) Problem of Scarcity. Both, the state as well as the individual face the problem of scarcity of resources. An individual has to manage his multiple needs with his scarce resources. In the same way, the state has to adjust its scarce resources to meet public expenditure. None of the two is capable of extending its expenditure beyond a certain limit.

 (4) Borrowing. Sometimes, in emergency, both the stale and the individual have to borrow funds when their income falls short of their expenditure. An individual borrows funds from his relatives or banks and the government borrows funds from the public and individuals also. At the same time, it is obligatory for both to repay the debt according to the terms of borrowing,

(5) Rationality of thought. For both types of finance rationality is the guideline. Both make it certain in their mind that the money is spent in the best possible way so as to get the maximum satisfaction. Sometimes, as individual may behave in an irrational manner. Similarly, sometimes state may pursue certain irrational and unwise policies. All these may have harmful effects.

We think, our attempt to point the similarities between private finance and public finance is somewhat clear now. If you still have points, you can search more on this topic.

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