The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Real and Nominal Quantities

  • R. O’Donnell
Reference work entry


Adam Smith, in his Inquiry into the Nature and Causes of the Wealth of Nations of 1776, distinguished between the nominal price and the real price of commodities. He defined the nominal price of a commodity as its price in silver or gold and the real price as the quantity of labour which it can purchase or ‘command’. In other words, he adopted the money wage of ordinary labour as his standard of value. Ever since the critical commentaries of Ricardo and Marx this choice of standard has been seen by many as evidence that Smith’s measure and theory of value were confused or inconsistent (see Ricardo, Works I, pp. 14–15; Marx 1861–63, I, pp. 69–77; II, pp. 200, 369; and Douglas 1928). More recently there has been a rejection of the view that Smith confused labour embodied and labour commanded and, as Hollander says, ‘the issue at hand, it is now generally recognized, corresponds to the modern “index number” problem of estimating changes in “real income” over space and time’ (Hollander 1973, p. 127; see also Schumpeter 1954, p. 127 and Blaug 1978, pp. 51–3).

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • R. O’Donnell
    • 1
  1. 1.