This section is from the book "Mission Furniture: How To Make It", by Henry Haven Windsor. Also available from Amazon: Mission Furniture: How to Make It.
Secure a piece of steel about 1/4 in. thick, 1-3/4 in. wide and 8 in. long. Drill various sized holes through the steel as shown in Fig. 1, leaving the edge of each hole as sharp as the drill will make them. Cut off a block of wood the length necessary for the dowels and split it up into pieces about the size for the particular dowel to be used. Lay the steel on something flat, over a hole of some kind, then start one of the pieces of wood in the proper size hole for the dowel and drive it through with a hammer, as shown in Fig. 2. The sharp edges on the steel will cut the dowel as smooth and round as if it were turned in a lathe.
Easy Way to Make Dowels