You are absolutely correct Hamish. All garments shrink over time. It is the agitation that does it. And Wool is the worse. In days past, before washing machines were such a large part of our households you could find sock stretchers, sweater blocks, and scarf rollers in every laundry room.
The secret to washing Wool is COLD water and little to no agitation. I simply squeeze the fabric.
The surface of a wool fiber when looked at under magnification looks very similar to a pine cone. The application of heat softens and opens the plates. Agitation such as that in a washing machine or dryer then pushes the the plates into each other shortening the length of the fiber and making it thicker. This is known as 'Fulling'. The mats in cat fur and dreadlocks are formed in a similar process of locking the microscopic scales together.
This is also how felt is produced.
Once 'Fulled' Wool fibers are permanently shortened and thickened.

But we have washed clothes for as long as clothing has been around and with proper care a Wool Kilt will survive repeated hand washing. There are some who only hand wash Wool Kilts. It is thought that the chemicals used in Dry Cleaning will, over time, remove the lanolin from the Wool.