I periodically run cleanowned scattered X (not to be confused with "x"; "X" confiscates only clothing near to falling apart), followed by autodump destroy (after making sure that nothing actually valuable, such as adamantine cloaks, was scattered and now set to be dumped). Any tattered, grimy rags left over when the filthy humans come around I trade to those suckers in exchange for the finest writing their alleged civilization has produced.
In the long term--and this wouldn't work for every fortress; you need to be pretty dang well set for adamantine (and have dfhack, to fix the adamantine-clothing-decaying bug)--I'm gradually having my legendary armorsmith create adamantine clothing for everyone. She's doing cloaks, shoes and socks first, then hoods, then gloves, and from there we'll see whether I have any left (there's a good chance I'll run out before she's done with the cloaks, shoes and socks). Another benefit to this is that I've already noticed that fewer of my dorfs are going to the hospital with minor barfighting wounds, since many non-skilled attacks will be deflected.
Side note: the armorer is one of the first migrant children to grow up, now a very valuable member of society. Both she and her father walk with crutches because they barely survived duels with terrifying creatures. She's married to one of the clothiers whom she's eventually going to put out of business; I've been having him train up armoring so he can join her in her quest to create imperishable garments for everybody.