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The term Gnomes was briefly used in J.R.R. Tolkien's early work The Book of Lost Tales to describe the race of Elves that would become the Noldor. In those works he borrowed several folkloric names to describe his original creations, like Fae, Elves, Dwarves, Ogres and Goblins.
A Gnome is a dwarf-like creature of European folklore, often associated with Dwarves and Goblins. Traditional Gnomes however were unlike his depiction of his High Elves, they were imagined as deformed, underground and by the 19th century were depicted dwarf-like.
For that reason Tolkien dropped the term since that would confuse the readers. However other folkloric names like "Elves", "Dwarves" and "Goblins" would persist in Tolkien's writing ever since, although he would be unsure about them (he did replace "Goblin" with "Orcs" after the publication of The Hobbit").
At one time, "Gnomes" also referred to the Valar.
- Gnomes in Wikipedia