Quote from: tee-rex on March 27, 2015, 04:30:28 PM

Then the real interest would be equal to nominal one in case there is no inflation?

Yes, that's the idea. Because if there is no inflation or deflation, the monetary gain is the gain in value. The "real interest rate" is the actual gain in value. The nominal rate is the rate you have to pay, and which compensates for the inflation or deflation, if you borrow a monetary asset. If there's no inflation or deflation, both are the same.

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So, as I understood your reasoning, you still consider as losses anything which the producer gets above the inflation rate but below inflation plus lenders interest, i.e. nominal interest? Even if he is not borrowing, right?

Yes, because you should consider that he's borrowing. The point is that you have two investment options:
1) doing your thing USING the money
2) lending out the money (which comes down to putting it on a savings account, say).

If you get more by putting the money on a savings account rather than doing your thing with it, doing your thing is a losing affair.

Let us assume no inflation or deflation for the moment, just to illustrate the point.

Say that you have $1000.- lying around.

You have 2 options:

1) putting that $1000.- in a savings account with an interest rate of 5%

2) doing something with it with a return on investment of 2%

Obviously, if you go for 2), you make 3% loss as compared to what you would obtain if you didn't actually do something with the money but put your money in a savings account, right ?

If you do an investment, and you get less from it than you'd get from a savings account, you're actually making losses. That can seem strange, but it becomes more obvious if you consider that you have to borrow the money to do your thing.

Now of course I'm neglecting something here, and that is the margin taken by the bank, who gives a lower return on savings accounts than it takes on loans. True. I'm taking out the bank as an intermediate, and consider that a savings account is directly a loan to someone. So it is true that you get cheaper off using your own money than having to borrow (because of the margin taken by the bank). The "real interest rate" for savings accounts is smaller than the real interest rate for loans. The difference goes in the bank's pockets. But of course the reasoning here is somewhat simplified, to get down to the essentials of the effects of inflation and deflation, without working out an entire business plan