In many languages, the word for “dwarf” and “gnome” is the same (German, Russian, Spanish, French, Latin, Dutch, etc), yet they are indeed different. The word “dwarf” is very old, deriving from the Anglo-Saxon word “dwarg”, which in turn came from the Proto-Germanic word “dwergaz”. This word was used dwarfs were mythical creatures in Anglo-Saxon and other Germanic folklores, described as “little people” who were known for their exceptional skill in metalsmithing. In Germanic and Scandinavian mythology, they created many treasures for the gods, such as jewelry, a magic hammer, a mechanical boar and mythical mead. After these various peoples converted to Christianity, the belief in dwarfs continued on in folklore, and they frequently showed up in folktales and various different superstitions.
The word “gnome” first appeared in the 16th century in writings about alchemy. In ancient alchemy, there were four basic elements: earth, water, air and fire, and Paracelsus believed that each element had a creature, or “elemental”, associated with it. Gnomes were associated with the element earth. The word comes from the Greek word “gnosis”, meaning “knowledge” Paracelsus’ description of gnomes, however, heavily borrowed from the description of dwarfs in contemporary folklore. So while they are ultimately different creatures, the history of dwarfs and gnomes is long intertwined.