This made the chimney a part of the heating system, acting like a large radiator as it was warmed by the flue gases from the wood stove. Grandpa probably realized this resulted in fewer chimney problems and chimney fires. This lesson seems to have been forgotten by many of us.
Interior chimneys are hard to find in today's new housing.
Digging basements by hand was not much fun, so the idea was to make the basement as small as possible. This meant the house had to go up to be big enough to hold grandma and the children. Often, the attic was used for living space. And it is still true today that it is easier to keep above grade spaces warm and dry than it is those below grade. We are still building too many damp basements and building in too many basement problems.