Body parts

As I was cleaning up the kitchen this morning after breakfast, before walking Gage to school, here is our conversation.
Gage: "Mom, is dick a bad word?"
Mom: (Eyes have popped open, jaw has dropped to the floor) "Yes, Gage, that is a bad word! Why do you ask? Where did you hear that?"
Gage: "What if your name is Dick?"
Mom: "Well Gage, if your name is Dick, then that isn't a bad word. But if someone's name isn't Dick and you call them a dick, that's a bad word!"
Gage: "But my Grandpa's name is Dick."
Mom: "Yes, Gage it is. That's not bad when you call him that, because it's his name. Gage, do you remember not long ago when we talked about nuts being a slang term for testicles, well, dick is a slang term for your penis."
Gage: (Eyes are big and a little shocked). Alan has a book with Dick in the title. He told me that was a bad word.
Mom: "Well Gage, if that was in the title of a book, then it probably wasn't used in a bad way, because it was probably someone's name. Dick is a nickname for Richard. So, if you call someone that when it's their name, it's okay, but when you call someone that when it's not their name, you're calling them a penis, and that's not nice. So, if that title was meant in a bad way, then he shouldn't have been reading that book!"
Gage: "Okay Mom. Alan always tells me the truth."

I want to know if anyone knows how and when Dick was derived from Richard? Maybe long ago someone called a guy named Richard a dick, and somehow it stuck and all these poor men named Richard have been being called Dick all their life? We call my brother-in-law Richard (behind his back of course). I suppose we shouldn't do that in front of Gage anymore!

The questions are only going to get worse I'm afraid.