O N R E A L A N D N O M I N A L V A L U E .
A DISTINCTION of value into real and nominal, has been made by several of our most eminent economical writers. According to Adam Smith, the real value or price of a commodity is the labour which it will command, while the nominal value is the money for which it will exchange. As this definition of real value is evidently inapplicable to labour itself, he proceeds to say, that the real value or price of labour may be said to consist in the quantity of the necessaries and conveniences of life which are given for it; its nominal price in the quantity of money *.
Mr. Malthus, in his Principles of Political Economy, has adopted similar, if not precisely the same distinctions. The most proper de-finition, he says, of real value in exchange, in contradistinction to nominal value in exchange, is the power of commanding the necessaries and conveniences of life, as distinguished from the power of commanding the precious metals *.
Mr. Ricardo also makes a distinction, in the case of labour, between real and nominal value. Wages, he says, are to be estimated by their real value, namely, by the quantity of labour and capital employed in producing them, and not by their nominal value, either in coats, hats, money, or corn†.
After the disquisition on the nature of value in the preceding chapter, the distinction of it in this way, into two kinds, must appear to be merely arbitrary, and incapable of being turned to any use. What information is conveyed, or  what advance in argument is effected by telling us, that value estimated in one way is real, but in another nominal? The value of any commodity denoting its relation in exchange to some other commodity, we may speak of it as money-value, corn-value, cloth-value, according to the commodity with which it is compared; and hence there are a thousand different kinds of value, as many kinds of value as there are commodities in existence, and all are equally real and equally nominal. We gain nothing in perspicuity or precision by the use of these latter terms, but, on the contrary, they entail upon us a heavy incumbrance of vagueness and ambiguity and unproductive discussion.
Of the latter we have a good exemplification in the Templars' Dialogues on Political Economy, dialogue the fourth, which contains much ingenious reasoning, founded altogether on this distinction. It would not probably have been written, however, had the author attended to the simple fact, that value must always imply value in something, and unless that something  is indicated, the word conveys no information. Now as the terms nominal and real do not denote any thing in this way, they stand in the predicament just mentioned, they convey no precise information, and are liable to engender continual disputes, because their meaning is arbitrarily assumed.
In a subsequent chapter on the value of labour, I shall probably have an opportunity of examining some of the positions of this writer, founded on his doctrine of the real value of wages. At present it will be sufficient to confine ourselves to the value of commodities. Following Mr. Ricardo, he appears entirely to lose sight of the relative nature of value, and, as I have remarked in the preceding chapter, to consider it as something positive and absolute; so that if there were only two commodities in the world, and they should both from some circumstances or other come to be produced by double the usual quantity of labour, they would both rise in real value, although their relation to each other would be undisturbed. According to this doctrine, every  thing might at once become more valuable, by requiring at once more labour for its production, a position utterly at variance with the truth, that value denotes the relation in which commodities stand to each other as articles of exchange. Real value, in a word, is on this theory considered as being the independent result of labour; and consequently, if under any circumstances the quantity of labour is increased, the real value is increased. Hence the paradox, that it is possible for A continually to increase in value in real value observe and yet command a continually decreasing quantity of B *: and this although they were the only commodities in existence. For it must not be supposed that the author means, that A might increase in value in relation to a third commodity C, while it commanded a decreasing quantity of B a proposition which is too self-evident to be insisted on; but he means that A might in-crease in a kind of value called real, which has no reference to any other commodity whatever *.
Apply to the position of this author the rule recommended in the last chapter: inquire, when he speaks of value, value in what? and all the possible truth on the subject appears in its naked simplicity. The touch of this talisman will show, that the paradox above quoted,  and which is asserted by its author to be true in such a way and degree, as to oblige him who denies it to maintain an absurdity, is either a palpable contradiction in terms, or a mere truism scarcely worth a word of illustration, much less that display of logical dexterity which he has exhibited in its support. Since value must be value in something, or in relation to something, if there is any meaning at all in the proposition, that it is possible for A continually to increase in value, and yet command a continually decreasing quantity of B, it must be either, (1) that A may increase in value in relation to B, and yet command a continually decreasing quantity of this very B ; or (2) that A may continually increase in value in relation to other commodities, or what amounts to the same thing, to a third commodity C, while the said A commands a continually decreasing quantity of B. These are the only possible interpretations which can be given of the proposition, according to the received definition of value. Now in the first sense, the proposition is palpably absurd,  if tried by the principle laid down in our last chapter, that a rise in the value of a commodity means, that an equal quantity of it exchanges for a greater quantity than before, of the commodity in relation to which it is said to rise. To maintain, therefore, that A increases in value to B, and at the same time that it commands a smaller quantity of B, is to affirm a rise and fall in A at the same moment.
In the second sense the proposition, as I have already remarked, is too self-evident to require any proof; and as the author of the Dialogues has expended so much labour and dialectical skill in explaining and supporting it, we might fairly infer that this is not the sense in which he meant it to be interpreted, even if he had not put the matter beyond dispute by his doctrine, so frequently and strongly expressed, that there is no necessary connection at all, or of any kind, between the quantity commanded and the value commanding *.
The eminent writers on whose doctrines I  have hazarded the preceding observations, agree in defining value to be the power of an object to purchase or command other objects in exchange. Adhering to this definition, it is difficult to conceive what propriety they could have discerned in their use of the words real and nominal. A real power of purchasing implies, if it means any thing, that it is not a false or pretended power; while the counter phrase, a nominal power of purchasing, intimates that the power is only in name; that it is not what it professes to be. But the applicability of these epithets can have no dependence on the nature of the commodities in relation to which the power is possessed, nor on the causes affecting the production of the commodity in which the power resides. According to all proper usage, the epithets refer not to any thing in the power itself, but to the quality of the affirmation that the power exists, characterizing that affirmation as true or false.