The positive correlation between the nominal interest rate and the price level observed during the gold-standard period was called the Gibson paradox by Keynes (1930). The paradox is that in equilibrium, the price level depends on the quantity of money in circulation, while the rate of interest does not. This report shows how, to yield the real cost of borrowing, the price level can be combined with the nominal interest rate in a monetary regime where the level of prices is trend stationary. Real interest rate series are estimated for the gold-standard period in the United Kingdom under the assumption the agents expect the price level to come back to its long-run equilibrium value. The Gibson paradox is used to explain why the nominal interest rate was so stable in a period characterized by numerous wars and important gold discoveries. The new real interest rate series provides the opportunity to re-examine the finding of Barro (1987) on the effect of temporary military spending on interest rates.