I knit them! Blankets, sweaters, hats, socks, diaper covers (soakers), mittens, legwarmers. Knitpicks.com has some sturdy worsted for a good price: http://www.knitpicks.com/yarns/Wool_of_the_Andes_Worsted_Yarn__D5420103.html
I also often find sweaters in thrift stores, unravel and wash the wool, and use that to knit new items-- so cheap.
I've made puddle pads out of felted wool blankets from thrift stores, and sewn soakers from felted sweaters.
There's a learning curve to knitting, but youtube has tons of good tutorials if you don't have a real-life teacher, and it can be very satisfying to make something for your very own baby with your very own hands.
I wish I had time to try and learn! I would love to buy something from a WAHM or used or something like that, but I just have no time to do the work myself even i already did know how to knit!
Wool baby clothes are expensive because the fibers are more expensive and the market is small. On the plus side, they have a different care routine that allows you to use fewer pieces and wash them less. People are either "true believers" and pay the expense or they knit them or upcycle them from thrifted items.
If you have sewing skills, but not knitting, there are lots of simple patterns for turning a $3 thrifted sweater into baby pants that also act as a diaper cover.
I have Stiff Person Syndrome and my other car is a candy apple red Rascal. Feel free to ask me about it.