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Solved it quite easily as follows: I leveled the blacksmith to level 2 by gathing lots of coal from the coal vein in the west (essentially one iron pick worth) and selling it to him. Doing this just once was sufficient to get him to the next level. Then I could simply buy an iron hammer for, I think, 5 silver.
Btw, I read somewhere that selling stuff to merchants also raises their available money and thus their level in the long run, as they will re-sell your stuff a bit later for a higher price. At least for my blacksmith, this definitely worked.