Tolkien found the dwarf-names in the poem ‘Völuspá’, ‘The Sybil’s Vision’, one section of which is called the ‘Dvergatal’, ‘the Tally of the Dwarves’. (…) Tolkien did not just copy ‘the Tally of the Dwarves”, or quarry it for names. He must rather have looked at it, refused to see it, as most scholars do, as a meaningless or no longer comprehensible rigmarole, and instead asked himself a string of questions about it. What, for instance, is ‘Gandálfr’ doing in the list, when the second element is quite clearly ‘álfr’, elf, a creature in all tradition quite distinguished from a dwarf? (…)
In early drafts of ‘The Hobbit’ Gandalf was the name given to the chief dwarf, while in the first edition what Bilbo sees that first morning is just ‘a little old man’. Even in the first edition, the little old man’s staff soon comes into the story, while by the third edition (…) Gandalf has become ‘an old man with a staff‘ (…). This seems highly suitable. Even now the ‘magic wand’ is the common property of the stage-magician, while in all popular and learned literary tradition, from Shakespeare’s Prospero to Milton’s Comus or Terry Pratchett’s Discworld, the staff is the distinguishing mark of the wizard. It looks as if Tolkien sooner or later interpreted the first element of ‘Gandálfr’, quite plausibly, as ‘wand’ or ‘staff’, while the second element, as said above, obviously means ‘elf’. Now Gandalf in Tolkien is definitely not an elf, but then it turns out that he is not just an ‘old man’ either; one can see that to those who knew no better (people like Éomer in ‘The Lord of the Rings’ much later on) he might well seem distinctly ‘elvish’. Tolkien seems to have concluded at some point that ‘Gandálfr’ means ‘staff-elf’, and that this must be a name for a wizard. And yet the name is there in the ‘Dvergatal’, so that the wizard must in some way have been mixed up with dwarves. Could it be that the reason the ‘Dvergatal’ had been preserved was that it was the last fading record of something that once had happened, some great event in a non-human mythology, an ‘Odyssey’ of the dwarves? This is, anyway, what Tolkien makes of it. ‘The Hobbit’, one might say, is the story that lies behind and makes sense of the ‘Dvergatal’, and much more indirectly gives a kind of context even to ‘Snow White’ and the half-ruined fairy-tales of the brothers Grimm.
~ Tom Shippey: J.R.R. Tolkien. Author of the Century.