One of the last notes in this section says:  "the much later waning of the Hobbits in their state or way of life; they became a fugitive and secret people, driven (as Men, the Big Folk, became more numerous, usurping the more fertile and habitable lands) in refuge in forest or wilderness:  a wandering and poor folk, forgetful of their arts, living a precarious life absorbed in the search for food, and fearful of being seen."

    Is this the sad fate of the Shire, or a note on how the Hobbits got so small in the first place?  On the face of it, the "forgetful of their arts" suggests the loss of such anachronistic luxuries as postal service.  We may assume that it is the heirs of Sam who dwindled in a fugitive search for sustenance.  Dwindled, perhaps, into the 'little people' of rural English legend.

     On the other hand, can this be taken as a explaination of how a branch of humanity shrank to Hobbit size to begin with? 

     Vote A) for the Sad fate of the Shire, B) For the natural History of Hobbits. 
     If you vote A, tell us if you think they dwindled to the point of eventually qualifying as Garden Gnomes.