# nominal-price

## Definition

The nominal price of a commodity is its price expressed in money, or the quantity of money for which it is exchanged. This is the commonly used measure of value in commercial societies, where money has become the common instrument of commerce. Smith distinguishes nominal price from real price (price in labour), arguing that while nominal price is what people commonly use to estimate value, it is less accurate because the value of money itself can fluctuate over time.

## Source Chapter

Book 1, Chapter 5: "OF THE REAL AND NOMINAL PRICE OF COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY."

## Context

Smith introduces nominal price as a contrast to real price in his discussion of value measurement. He explains that once barter ceases and money becomes the common instrument of commerce, people naturally estimate the value of commodities by their nominal price in money rather than by the quantity of labour they can command. This shift from real to nominal price is described as more natural and obvious to most people, though less accurate as a measure of true value.

## Economic Domain

General Theory

## Smith's Original Wording

"But though labour be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated... But when barter ceases, and money has become the common instrument of commerce, every particular commodity is more frequently exchanged for money than for any other commodity."

## Modern Interpretation

Nominal price represents the face value of goods and services in monetary terms, which is the standard way modern economies measure value. However, Smith's distinction remains important because nominal prices can be misleading when the value of money changes over time due to inflation or deflation. This concept underlies modern economic distinctions between nominal and real values in price indices, wage calculations, and economic growth measurements.