Real Default-Free Interest Rates and Intertemporal Rates of Substitution

Within a framework of intertemporal rates of substitution, the economic reason for an intertemporal rate of substitution less than 1 is that:

No. This is a generally correct statement that leads to diminishing marginal utility, but it doesn't directly address the value of the intertemporal rate of substitution.

Yes! Given that the marginal utility of consumption is higher today, since all investors should prefer any extra consumption unit today to receiving it in the future, the marginal utility of consumption today is higher than the marginal utility of consumption in the future. This is what ensures that the ratio defining the intertemporal rate of substitution is less than 1. $$\displaystyle \widetilde{m}_{t,s} = \frac{MU_s}{MU_t}$$

That's not it. The economic justification for a default-free real rate of return is separate from nominal interest rate levels.

nominal interest rates must be positive.

extra units of consumption provide less marginal utility.

investors prefer extra consumption today to extra consumption tomorrow.