The applicability of the laws of terrestrial physics to cosmology is examined critically. It is found that terrestrial physics can be used unambiguously only in a stationary homogeneous universe. Therefore a strict logical basis for cosmology exists only in such a universe. The implications of assuming these properties are investigated. Considerations of local thermodynamics show as clearly as astronomical observations that the universe must be expanding. Hence, there must be continuous creation of matter in space at a rate which is, however, far too low for direct observation. The observable properties of such an expanding stationary homogeneous universe are obtained, and all the observational tests are found to give good agreement. The physical properties of the creation process are considered in some detail, and the possible formulation of a field theory is critically discussed.