Bilbo is starting to feel like a real live hero now. With the aid of his Elvish Letter-Opener, and a rush of unexpected courage, he was able to rout a bunch of gigantic spiders and rescue his friends from the spiders' webs. The dwarves no longer regard him as a piece of useless baggage; they are greatly impressed. The fact that, as Bilbo sheepishly admits, he also had the help of a Magic Ring of Invisibility does not lower him in their estimation. After all, it takes luck to find a Magic Ring and it takes wit and bravery to use it well.
But the dwarves are still hungry and lost in the Forest of Mirkwood; and their leader, Thorin, has gone missing.
Thorin has been captured by the Wood-elves who dwell in the forests of Mirkwood, and brought before their king. This king is named Thranduil in Lord of the Rings, but here is unnamed.
Tolkien here gives a brief explanation elvish sub-cultures and migrations. Ages ago, the Valar, the divine powers which served the creator Ilúvatar, (Tolkien was too much of a good Catholic to call the Valar gods, but that is the role they serve in elvish cosmology), summoned the elves across the see to Valinor, the timeless paradise which Tolkien here calls "Faerie". Some of the elves heeded the command and made the long journey across the Sea, but others elected to remain in Middle-Earth, being too much in love with the forests and the green earth. Of the ones who completed the journey, the High Elves, a group called the Noldor returned to Middle-Earth as part of the tragic and convoluted story of Fëanor, which makes up the greater part of The Silmarillion but has nothing to do with The Hobbit. The relevant point is that the Wood-elves of Mirkwood are of the Silvan elves who stayed behind, and are culturally a little less civilized than the House of Elrond, whose ancestors were among the Noldor.
The Elf-king does not trust Thorin, because of the traditional enmity between the two races.
In ancient days they [the elves] had had wars with some of the dwarves, whom they accused of stealing their treasure. It is only fair to say that the dwarves gave a different account, and said that they only took what was their due, for the elf-king had bargained with them to shape his raw gold and silver, and had afterwards refused to give them their pay.This is a highly-abbreviated version of the story of the Nauglahin told in The Simarillion. It was a piece of elf-bling commissioned by Thingol, king of the woodland elves' domain in the First Age, as a setting for one of the Simarils. Because of the Curse of Fëanor, pretty much everybody having anything to do with the Simarils met with tragedy. The corrosive effects of greed and covetousness are a recurring theme in Tolkien's works, and will come up again in The Hobbit.
It also should be mentioned that the elves and the dwarves had a long history together, and not all of it bad. In the original creation account of the elves, there were only two sentient races, elves and men. The dwarves in The Silmarillion come off as kind of an afterthought. The early elves thought that dwarves were ugly and called them "the stunted ones". But the dwarves were no friends of Morgoth's and in their own way fought against him. Their oldest home was Khazad-dum in the Misty Mountains and they developed close ties to the elves who lived in neighboring Eriador. These elves were Noldor, who had returned from Valinor, and were craftsmen; so they and the dwarves had much in common. Unfortunately, the dwarves inadvertently woke a great evil sleeping under the mountains which destroyed their home. The elvish communities also dwindled until they only existed in small pockets such as Elrond's home in Rivendale.
It is because of this long history of mutual mistrust that the Elf-king suspects Thorin of being a spy, and that Thorin refuses to tell the elves any more than he has to. The king orders Thorin sent to his deepest dungeon.
The following day the elves find and capture the rest of Thorin's crew, except for Bilbo who slips on his Magic Ring and follows invisibly. The other dwarves are no more co-operative than Thorin was.
"What have we done, O king?" said Balin, who was the eldest left. "Is it a crime to be lost in the forest , to be hungry and thirsty, to be trapped by spiders? Are the spiders your tame beasts or your pets, if killing them makes you so angry?"This pisses the Elf-king off even more. The spiders are not his pets, thank you; reading between the lines of both Hobbit and LOTR we can gather that the spiders only started becoming a problem in Mirkwood when the Necromancer moved into the neighborhood. Tolkien emphasizes here as well as the chapter in Rivendell that elves are "the Good People" and are not wicked. But they can be subject to greed like everybody else and this Elf-king, like Thingol before him, has a weakness for jewels.
The Elf-king has the dwarves sent to separate dungeon cells, on the theory that eventually one of them might crack and tell them why they were really in the forest; which might have worked with any creatures but dwarves. Actually, Thorin is very close to giving up and telling the Elf-king the truth when Bilbo shows up.
Bilbo has managed to sneak into the elf-citadel and has been wandering around it invisibly. Unfortunately, there is little he can do except hide and explore. His invisibility can only do so much; he still has to stay out of people's way, and if he falls asleep in the wrong place he risks having an elf stumble over him. Also, he still casts a faint shadow in strong light, so he has to be doubly careful when sneaking out into the open. "I am like a burglar that can't get away, but must go on miserably burgling the same house day after day," he complains to himself. But in his explorations he discovers the cells where the dwarves are being kept, including Thorin, and is able to pass messages between them.
Finally, after several weeks skulking about the underground halls of the Elven-king, Bilbo discovers a way out. The main entrance to the city are a set of large gates opened and shut by magic, possible for an invisible hobbit to sneak through, but not a baker's dozen of highly-visible dwarves. Bilbo discovers a second way out, though: a water-gate opening up through a trap door to an underground river which leads out of the city and eventually out of the forest. The elves of Mirkwood use this river to transport trade goods to and from a settlement of men who live on a large lake downstream. The goods are transported in barrels and this is where Bilbo gets his idea.
One night, when the Elf-king is holding a feast and most of the staff are occupied, Bilbo steals the keys from the guardsman, who had been doing some celebrating of his own and sleeping off some very potent elvish wine. Bilbo frees the dwarves and hides them in a bunch of empty barrels waiting to be sent back down the river. The dwarves aren't extremely happy with this plan, but Bilbo has no better one and to be truthful, the dwarves have begun to rely on his resourcefulness. ("Just what Gandalf had said would happen," the narration tells us).
It is a cold and uncomfortable trip, as much for the dwarves, who are battered and buffeted in the dark casks; as for Bilbo, who nearly drowns trying to hang onto one of the rolling barrels. But the plan works, and they all arrive safely, if wet and bedraggled in the Lake-Town.
Lake-town is an artificial island, built wooden piers, like the crannogs of the ancient Irish. When Thorin enters the town, he proudly announces himself as the King Under the Mountain, returned to claim his kingdom. And something remarkable happens. For once, people are happy to see him. Lake-town is built on trade, and although none of the Lake-men are old enough to remember a time before the Dragon, they tell stories about how the era in which the Dwarves ruled the nearby Lonely Mountain was a time of prosperity. Many are eager to believe that the Return of the King means a return of that age when the River ran with Gold.
The Master of Lake-town is a shrewd businessman and believes that the dwarves are frauds and vagabonds; but he knows enough to court popular opinion, so if the populace thinks they are figures out of prophecy, he's willing to go along with the gag. Bilbo finds himself overwhelmed and overlooked by the dwarves' sudden popularity and Thorin and Co. are feasted and hailed; but he's fine with that. He caught a bad cold riding the barrels down the river, and when he is asked to speak at a banquet, the best he can muster is "Thag you very buch."
NEXT: The Last Stage; the Lonely Mountain at Last; and Facing Smaug the Terrible!!!