Here are a few axioms one could follow to define capital and differentiate it from expenses or income:
When a money movement has any reasonable relationship to another event or money movement in the past or the future, we generally define this as capital (asset or liability).
When a flow is isolated and or voluntary, this is generally not "capital" - it could be tempting to call this revenue or expenses, but I do not and wont go into this definition within this note.
Groups of connected capital flows where we are the total gross recipients over time are assets and those where we are the total gross payer are liabilities.
So now we have successfully defined a balance sheet item, how could we value it? Generally, one approach is to consider what a third party would pay for it - its price. When a financial asset, like a stock or bond exchanges hands a lot, the price of it is the same for everyone. The value to each entity however is quite different.
Another interesting fact is that as your liabilities increase - the value of your capital assets become more closely linked to available prices in the market. Conversely, as your capital obligations decrease they become more and more disconnected and you can “value” things wherever one is allowed to (which is high).
A simplistic example
Two parties both have $2,000
Party A owes creditors 200 / year for the next 5 years
Party B owes creditors 100 / year for the next 5 years
Let's also assume that in this world there is one available productive capital asset - which is being offered for sale by Party C for $1000 and earns 300/year for 5 years. My argument is that this is worth more economically to Party B.
Why? Because after the investment period, Party A will be worth $2500 and Party B will be worth $3000. The same 300/year asset was resulted in Party B being more wealthy - having more buying power. In this case, when there is a limited supply of this asset Party B would likely pay up to $500 more than Party A for it.
This is an extreme example, but it is indicative of environments where productive assets are scarce and debt is available. In an environment where Party A and Party B are constantly competing for the same assets, Party B can and should always reasonably pay a higher price and still get more value than party A.
Optimizing purely for wealth - it stands to reason that Party B should pay higher prices for any available asset. All assets which Party A views as expensive are literally cheaper to Party B. Understanding this difference is critical to Party A’s strategy to grow its wealth and it all starts with a lucid acceptance of an entities own liabilities.
The biggest mistake Party A could make, would be to pay the prices Party B is willing to pay while thinking that value is the same for itself.