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Thomas Keightley from the World Guide etc

These diminutive beings, dwelling in rocks and hills and distinguished for their skill in metallurgy, seem to be peculiar to the Gotho German mythology.  Perhaps the most probable account of them is, that they are personifications of the subterranean powers of nature, for it may be again observed that all the parts of every ancient mythology are but personified powers, attributes and moral qualities..........

The Duegar are described as being of low stature, with short legs and long  arms, reaching almost down to the ground when they stand erect.  They are skilful and expert workmen in gold, silver, iron and other metals.  They form many wonderful and extraordinary things for the Aesur (the gods) and for mortal heroes and the arms and armour that come from their forges are not to be paralleled.  Yet the gift must be spontaneously bestowed, for misfortune attends those extorted from them by violence.

The dwarfs have long since abolished monarchy.

Grimm's Deutsche Sagen [Source Thomas Keightley]
This subterranean race has no proper communication with mankind, but pass their lives within the earth, where their apartments and chambers are filled with gold and precious stones.  Should occasion require their visit to the surface of the earth, they accomplish their business in the night and not the day.