Sorry, leaving silly remarks aside I've occassionally wondered whether JRRT gained any inspiration from Dr Margaret Murray's "God of the Witches" I understand it's out of print now and may well have been published around the time LOTR was being put together. She theorises that traditions of gnomes and elves stem from a race memory of the time when invaders of these islands, Roman or earlier, would have driven the native tribes to less hospitable regions ie mountains and moorland. They would have to survive by becoming skilled at finding shelter where none would seem to exist and perhaps dressed in darkish clothes in order to blend into their surroundings. Hence elves and fairies living under the hollow hills.
All just theory but interesting. Her book also theorises that Joan of Arc was a witch in a coven which accounts for why she was burnt by the Brits. Well worth a read.