I don't see what that should follow at all. Depending on the supply and demand for loanable funds, investors may demand a high or a low risk-free interest rate,

I don't see what that should follow at all. Depending on the supply and demand for loanable funds, investors may demand a high or a low risk-free interest rate, and there's no a priori reason it would only reach equilibrium at the rate of inflation. Certainly some investors are going to want to be compensated even in real terms for deferring consumption. Historically inflation was much lower and interest rates much higher, especially if you look back to the middle ages: https://economics.rutgers.edu/downloads-hidden-menu/news-and-events/workshops/money-history-and-finance/1823-paulschmelzing/file https://economics.rutgers.edu/downloads-hidden-menu/news-and...