Interest in a gold economy, part deux
I came across this thought experiment on another website. I don't know the answer for certain, but it helped clarify a few things in my mind.
The key difference between our world and the hypothetical fixed-gold reserve world is that in the latter, money keeps getting more valuable. If I loaned out a one ounce gold coin, when that coin was returned to me, it would be worth more. There's a built-in "interest".
One might argue that because of this, there would be no nominal interest in such an economy: loan some money, and when you get it back, you receive more value. However, if that was the case, then nobody would loan anybody any money. That same interest could be earned by burying the gold in your back yard and digging it up later.
For loans to exist, there would be have to be some additional nominal interest on top of the "built-in interest". Because of the "built-in interest", the nominal rates would probably be lower than in our world, though actual interest rates ("built-in" + nominal) would probably be similar.
We can make a general statement that the rate at which money becomes more valuable in such an economy is the rate of growth of that economy. As goods and services become more plentiful, yet the amount of money stays constant, money becomes more valuable. The rate of growth of the value of money would have to be close to the rate of growth of the economy.
So why would anybody loan out any money in such an economy? He would have to believe that the debtor has the means to outperform the general economy. That's the only way the creditor could be paid back a greater return than he could get by burying the gold in his back yard.