Fiscal Policy and Business Cycles

By Alvin H. Hansen | Go to book overview
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Chapter X

1. Private versus Public Budgets1

THE essential purpose of budgeting expenditures and receipts is to obtain a clear conception of the financial operations of an economic unit. This is true for the public economy no less than for private individuals or corporations. The significance of the accounts and the uses which one wants to make of them may, however, be very different in the public and in the private sphere.

It is customary for the layman, and also for many writers on public finance, to apply the same tenets of financial theory and practice to governmental bodies that are applied to private business. But even those who do so are far from consistent. Especially is this true in regard to budgetary theory and practice. Adapting the rules of private finance to the state, they nevertheless fail to carry this point of view over into public accounting procedure, particularly with respect to the budgeting of capital expenditures.

Expenditures on capital goods are given a special treatment in private accounting. Capital outlays are not lumped in with operating expenditures. Producers' capital is expected to yield a monetary return over its economic lifetime, and consumers' capital is expected to yield a flow of

See the illuminating chapters on public budgets in Public Policy, Yearbook of the Graduate School of Public Administration. Harvard University, 1941, by Harvey S. Perloff, Spencer Thompson, Robert H. Rawson, and Charles Stauffacher .


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