ABSTRACT
We know that in the post-World War II period, until the onset of global inflation in the mid-'60s, the cost of capital in all developed countries of the Free World ran somewhat above 10 percent a year (it is almost certainly much higher in Communist economies). The cost of capital is what a user has to pay in order to obtain money. It varies little, by the way, between different legal forms, e.g., between money lent as a loan, money raised by selling bonds, and money obtained by selling shares. What determines the cost of capital are in part what economists call its "true cost" - which probably runs about 3 or 4 percent a year; secondly the - fairly high - cost of administration of money which even in very efficient big banks is at least 2 percent a year; third, the risk of not getting repaid, which is a genuine risk of loss - and, of course, much higher for some users than for others; and finally the risk that money itself will lose value, that is, the risk of inflation. Any user of money, whatever his sources for it, and irrespective of the legal form in which he obtains money, whether from a bank as a short-term loan, as a long-term mortgage or against long-term bonds such as those of the Federal Government, or by selling common shares, always has to pay all four kinds of "cost money" - and all four are genuine costs.
