I don't think it was notably "balanced" to limit hobbits to 4th level in the original set (and most fighter-class halflings likewise in 1E AD&D), while allowing dwarves and elves to advance further.
Gygax devoted DMG page 21 to the subject, under the heading of "The Monster as a Player Character".
Gygax went on to relate the advantages, especially for the DM whose task is to craft an imagined world, "when history, folklore, myth, fable and fiction can be incorporated or used as reference for the campaign".