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What were the origins of the Dwarves?

From: The Tolkien Less FAQ by William D.B. Loos

They were made by Aulë, the smith and craft master of the Valar. This was against Eru's Plan: Aulë had neither the authority nor indeed the power to create other souls (the result of his efforts was a group of what amounted to puppets). However, because he repented his folly at once and because his motives had been good (he desired children to teach, not slaves to command) Eru gave the Dwarves life and made them part of the Plan. The Elves were still to be the "Firstborn", though, so the Dwarves had to sleep until after the Elves awoke.

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