Everyone knows that Santa's helpers are elves. Given the different perceptions of elves, however, that is not saying a whole lot. Elves have ranged from tall, god like beings to short, sprite like creatures. Legolas from Lord of the Rings is an elf, but then so is Hermey from Rudolph the Red-Nosed Reindeer. As to how two such different characters can both be considered elves, one must look at the history of elves themselves.
Elves were originally a part of the pre-Christian religion of the Germanic peoples. In the days before Christianity arrived in Northern Europe, the elves were actually worshipped. In Heimskringla King Olaf's skald Sigvatr Þóðarson is turned away from a farm house because the people there were preoccupied with the Álfablót, the sacrifice to the elves. In Kormáks Saga a wise woman told a wounded man to go to a mound in which elves lived and to offer a bull's blood and flesh to them in order to be healed. Sadly, while sacrifices to the elves are mentioned, their precise nature in the ancient Germanic religion is never clear.
What we do know for certain about beliefs among the ancient Germanic peoples is actually very little. As mentioned above, we know sacrifices are made to them and, from Kormáks Saga and other sources, they appear to have been associated with hills or mounds. We also know that they were believed to cause diseases as borne out by an Old English charm against elves and beliefs found among the Germanic peoples in elfshot (an arrow or bolt from the elves believed to cause illness). They were apparently believed to be very beautiful, as the Old English word ælfsciene, "beautiful as an elf," bears out. In Old Norse sources they are often named alongside the gods, the phrase Æsir ok Álfar occurring in the Poetic Edda and elsewhere. They are also mentioned in the Old English charm in close proximity to the gods--"if hit wære esa gescot/oððe hit wære ylfa gescot...," "if it was shot from the gods/or it was elfshot." In Old Norse sources we are told that the god Freyr of the Vanir is the ruler of Álfheimr, the realm of the elves.
Beyond these things we know next to nothing of how the ancient Germanic peoples regarded the elves. A common theory expressed has been that the elves were the spirits of the dead, an example being from Beowulf & Grendel: The Truth Behind England's Oldest Myth by John Grigsby. This could be born out by the fact that the elves were regarded as living in mounds and at least one dead king bore the title of "elf"--Olaf Geístaðálfr. That having been said, it seems possible that the elves were regarded as something more powerful than ancestral spirits. In Old Norse sources the elves are constantly named together with the gods--"Æsir ok Álfar." And we are told that Freyr, a god generally identified as one of the Vanir (one of the two tribes of gods--the other was the Æsir, a term also used of the gods in general). This has led some to believe that the Vanir and the elves are one and the same. This is the view expressed by Alaric Timothy Peter Hall in his thesis ]The Meanings of Elf and Elves in Medieval England.
Here it must be pointed out that it would not be unusual for entities regarded as gods in ancient times to now be reduced to characters such as Hermey the Misfit Elf. A similar phenomenon can be seen in Ireland with regards to the Tuatha Dé Danann. Appearing in euhemerised form in early Irish texts, the Tuatha Dé Danann are quite clearly the old Irish gods. And yet they would be identified with the people of the sidhe (mounds or hills), "The Fair Folk," "The Gentry"--quite simply, fairies.
Regardless, looking at Middle English sources, the elves may well have been gods rather than the spirits of the dead, for it is in those sources that they maintain part of their former glory. Indeed, they seem to be regarded as a powerful, human sized people living in a paradise like otherworld. In the medieval ballad "True Thomas," Thomas the Rhymer gets to visit Elfland and still return to Scotland. Thomas the Rhymer, also called Thomas of Erceldoune, was a legendary, 13th century Scottish figure known for his gift of prophecy. He was often found under the Eildon Tree, from where he would deliver people his wisdom. In "True Thomas," he meets the queen of Elfland, who wants him to serve her there for seven years. Thomas consents and travels with her to Elfland. There she tries to give him an apple from one of the trees from Elfland; however, Thomas knows that if a mortal eats anything from Elfland, then he or she won't be able to return to the mortal world. Thomas refuses the apple and returns to Scotland after his seven years of service are over. In other ballads the elves outright abduct human beings. In "The Queen of Elfland's Nourice," in which a mortal woman is tricked into going to Elfland to be the wet nurse for the Queen of Elfland's child. Childe Rowland and Lady Isabel and the Elf-Knight are even more sinister. In both a woman is abducted by an elf (the King of Elfland in the former, the Elf-Knight of the latter) for presumably nefarious purposes.
While many medieval ballads preserve memories of the elves in their former glory, as time went by they came to be regarded as mere fairy folk. William Shakespeare used the terms "fairy" and "elf" interchangeably, to the point that in A Midsummer Night's Dream he regards them as only a little bigger than the common insect. English poet Michael Drayton followed Shakespeare's lead in making elves diminutive. Still, memories of the elves as something more survived, as can be seen in Edmund Spencer's Faerie Queene. For centuries, the idea that elves were equivalent to fairies and rather small at that would be the most common one.
It was then with the view of elves as short creatures in place that they became associated with Santa Claus in the 19th century. Louisa May Alcott, the author of Little Women, was the first person to refer to elves as Santa's helpers, in the unpublished story "Christmas Elves" from 1856. Another reference to elves as Santa's helpers occurs in an anonymous poem titled "The Wonders of Santa Claus," first published in 1857 in Harper's Weekly. By the late 19th century, elves were firmly established as Santa's work force. While elves, once worshipped and given sacrifices, were reduced to menial labour by the 19th century, the 20th century would see them regain their former glory with a vengeance.
It would be Lord Dunsany who would take the first tentative steps in this process. In The King of Elfland's Daughter, elves are human sized and immensely powerful--powerful enough to wield magic over entire kingdoms. J. R. R. Tolkien would complete the process started by Dunsany in his novel The Hobbit. In The Hobbit and The Lord of the Rings the elves are immortal and god like. And like Dunsany's elves, they are immensely powerful. Tolkien's influence has been so great that there are many people who tend to think of the god like Galdriel and Elrond rather than Hermey when they think of elves. This is not to say that Tolkien did not regard elves as helpers of Father Christmas. In The Father Christmas Letters it is the Snow Elves who assist Father Christmas at the North Pole. Even then, however, it is doubtful Tolkien regarded them as diminutive little sprites--in fact, it is in The Father Christmas Letters that Tengwar, a script of the elves appearing in The Lord of the Rings, makes its first appearances. Dunsany and Tolkien's ideas on elves have been extremely influential, so much so that the elves of most fantasy novels written since owe them tribute.
Today the idea of elves as diminutive, magical beings and the idea of elves as god-like beings co-exist. This holiday season many will watch the movie Elf, in which Santa's helpers are once more portrayed as rather small. At the same time, however, others will watch Hellboy II: The Golden Army on DVD, in which elves are not only human sized, but some of them aren't even particularly nice (Prince Nuada would probably slaughter Santa rather than help him build toys....). Elves have gone from being gods to fairies back to being god like beings in the past thousand years. Regardless of how they are viewed, it is safe to say they will be around for a long time to come.