With central banks supplying liquidity to support financial markets and the broader economy in these extraordinary times, one might perhaps confuse the newly created 'credit' with 'capital' in an economy.

While there are several definitions of capital and each one requiring a full exposition, here is a starting point: a bird's eye view of different forms of capital and its meaning.

  1. In the context of corporations, capital refers to the cash raised from public or private markets by issuing shares or bonds. In corporate finance, capital structure refers to the split between equity and debt - with each instrument defining the legality, frequency of cash flows and other contractual terms between the issuer and the subscriber.
  2. Bank capital has unique features. The stress (no pun) is on reasonable longevity, liquidity and reflects the risk-adjusted value of assets less liabilities.
  3. Capital goods is a term often used in economics and perhaps in tax laws to refer to property, plant and equipment and long term working capital.
  4. Working capital is a term used by corporations to refer to inventories, receivables and other short term assets (less short term liabilities).
  5. Capitalized value often refers to the output of a valuation exercise. The focus may be a bond, a piece of real estate or a unit of business. It involves discounting future cash-flows at an appropriate discount rate.
  6. Human capital is a socio-economic and actuarial concept referring to the present value of future wage earnings of an individual until retirement. Financial planners refer to this as the 'Fixed-Income' like feature of the portfolio of an individual - one that isn't evident on the Balance Sheet of the individual.
  7. Capital in the context of classical economics has sharp distinctions with any of the above usages of the word. Capital is the stock of productive goods that yield a flow of consumption goods. At a highly abstract level, it is the only factor of production (all other factors combine into one) that spews out of goods and services. It is a sort of 'black-box' that the country must preserve and build, and from which benefits for current consumption are derived. Since it is an agglomeration of resources there is no single unit of measurement. A mental model of the economic definition of capital can be a giant machine that produces goods on one end while taking away a part of it for its own sustenance. In reality, however, capital stock is heterogeneous. Countries' stock of capital goods varies across dimensions, complexity, stage of production, the time required to increment, or replacement requirements. In short, creating capital is hard. Central bank liquidity is not a substitute for sustainable capital.