Why is it easier for the men of Lake-Town to believe in the dragon and more difficult for them to believe in Thorin and company in the middle of the wild
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The Master knows how dangerous Smaug really is. He also knows the prophecy. None-the-less, Thorin and the dwarves are celebrated and treated as heroes, and the Master...... knowing Smaug, doubts the dwarves are strong enough to be successful.
The men of the town didn't believe this until the songs came true and smaug was alive.