That "fairy" in the Hobbit might mean elf is further evidenced by Tolkien's use of the word fairy as a synonym for elf throughout his early writings of the mythos (cf. Book of Lost Tales).
It is also interesting that the general definition of fairy would include something like a goblin (my reference being to the 1937 text).
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"He was sent by a mere prudent plan of the angelic Valar or governors; but Authority had taken up this plan and enlarged it, at the moment of its failure."
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