Folklore about the Othercrowd stretches back centuries, with much of the recorded material we have focusing on protection against them. This is logical as they were thought to be able to harm humans as well as steal humans away. One of the main items recommended for protection against fairies is iron, although in the modern world I see a great deal of confusion on the subject and related topics. I thought it might be helpful to have a discussion here about iron, its uses, and some of the beliefs around it, so to that end I'm offering 7 points on fairies and iron:
1. Apotropaic Iron
Iron is said in folklore to protect against a wide range of spirits and negative magics including many of the Good Neighbors and Alfar, Ghosts, Demons, and witches. Iron objects deter the majority of the Other Crowd who are averse to its presence and things like knives, scissors, nails, and horseshoes were recommended as protective objects. It is said that cemeteries had iron fences to contain any ghosts inside. Similarly older folklore said that demons were also repelled by iron, and it was believed to break the magic of witches. A horseshoe hung up above a doorway kept out a wide range of spirits as well as protecting from baneful magic.
There is no set understanding of why iron works for this, but the belief is very widespread.
2. Fairies and Iron
Across Western European folklore, particularly in the Celtic language speaking cultures and the Germanic cultures, we find the idea that iron is an ideal protection against Otherworldly beings. There is no agreement whether this must be blacksmith forged iron or any form of iron, but as mass production has come in since the industrial revolution there seems to be no indication that iron in any form is less effective. In fact we do have British accounts claiming that railways and trains drove off the Good People as they came into new areas, something that is also attributed to iron church bells; while we can argue about whether the iron here was the crucial feature as opposed to the sound, it does at least support that mass produced iron can be associated with protection.
Its always best to remember that fairy is a general term, like animal, that applies to a wide array of beings. Iron is recommended as a superlative protection against fairies, but there will always be those who are not bothered by it. If we were to say that about 80% of fairies can't bear the touch of iron then the other 20% have no problem with it, and those would include mine faeries, forge spirits, and some house spirits; basically any fairy that would naturally exist or dwell near iron or iron ore. Also any of the aos sidhe connected to smithing don't seem to be bothered by iron.
3. Iron or Steel?
Steel has the same effect as iron because steel is almost identical to iron in substance. Or put another way steel, while it has some other metals alloyed in it, is still mostly iron.
As always keep in mind that the use of iron will not effect all fairies, as some - including mine fairies and house fairies - are not bothered by it. For those that are sensitive to it, though, it is a superlative protection.
To summarize; ultimately the amount doesn't seem to matter as long as the content is iron. The shape is also not important although it is more often recommended in a form that is sharp - a knife or nail - or combined with a holy symbol like a cross. The placement is best either on the person or very close by, especially near where they are sleeping. When placed above or next to an entrance it is believed that the presence of iron will keep out any Otherworldly beings. Although in today's world iron may be more difficult to find steel is fairly easily obtained and will work as well.
6. Fairies and Blood
There is an idea I have occasionally run across that the Good People would be or are averse to human blood because it contains iron. There are some anecdotal accounts which claim fairies have white blood and and are averse to or avoid the colour red and human blood (see: Fairy Faith in Celtic Countries and The Good People for more on this). However these are late 19th century and 20th century accounts which hinge on the Catholic belief that fairies have white blood because they are not mortal and have been denied Heaven/salvation and they avoid human blood not because it contains iron as some people are now alleging but because it represents the afterlife they are barred from. We also have a multitude of evidence that red is a colour associated with fairies and that many fairies are known to wear red which contradicts the idea that they would avoid that colour. While there is at least one anecdotal account, recorded by Lysaght in the Good People, of a belief that the Good Folk were averse to the color red and to blood, we see far more stories of fairies eating red meat, cooking bread with blood*, and in some cases eating humans even the ones who are averse to iron, so it doesn’t seem like blood and forged iron have the same effect.
Further to that point, the iron in human blood, aka hemoglobin, is not the kind that would ward against fairies anyway. Iron in human blood is a very miniscule amount; there’s only something like 4 grams total in a grown man altogether including blood, bone marrow, etc., Second of all hemoglobin is chemically different from ferrous iron which almost certainly makes a difference.
In short - iron or steel in any form protects against fairies. Human blood does not.
*this is from a story where a servant girl fails to leave out fresh water overnight for the Good Folk to cook with so they prick her and use her blood to make their bread instead, causing her to fall ill. Her health is restored only when she finds out what has happened and manages to get a piece of the bread for herself to eat.
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Evans-Wentz, W., (1911) Fairy Faith in Celtic Countries