The correct answer is option 'C' - Because of loneliness and poverty.

Explanation:

The peddler in the story "The Peddler of Swaffham" by W. Somerset Maugham is depicted as a lonely and impoverished individual. He spends his days wandering from village to village, selling small trinkets and knick-knacks to make a meager living.

Loneliness:
The peddler's loneliness is evident in his actions and behavior throughout the story. He often engages in conversations with himself, knitting up various kinds of thoughts as a way to cope with his solitude. These thoughts serve as a form of companionship for him, providing an outlet for his emotions and desires. Knitting up thoughts helps him fill the void of loneliness and gives him something to focus on during his long and solitary journeys.

Poverty:
The peddler's poverty is another significant factor that drives him to knit up various thoughts. His financial situation is precarious, and he struggles to make ends meet. As he reflects on his circumstances, he weaves different thoughts and fantasies in his mind, imagining a life of wealth and abundance. These thoughts give him temporary solace from his impoverished reality and help him escape into a world of possibilities and dreams.

Knitting up thoughts as a coping mechanism:
For the peddler, knitting up thoughts serves as a coping mechanism to deal with the challenges of his lonely and impoverished life. It allows him to escape from the harshness of his reality and find comfort in his own imagination. By creating different scenarios and narratives in his mind, he can momentarily forget about his hardships and find a sense of fulfillment and contentment.

In conclusion, the peddler knits up various kinds of thoughts primarily due to his loneliness and poverty. These thoughts provide him with a form of companionship and serve as an escape from his challenging circumstances.