The narrator describes the “High-Optional, Logical, Multi-Evaluating Supervisor, Mark IV, Mod. L,” or HOLMES FOUR, which is the computer that runs various aspects of the lunar settlement. He has nicknamed the computer “Mycroft Holmes,” or “Mike” for short. When Mike was first installed, it was not sapient, but as it was continuously upgraded with expansion hardware, it gained self-awareness, of which only the narrator is aware. Mike plays “pranks” on the colony, in one instance giving a janitor ten million billion more dollars than he was supposed to get in salary. The narrator is called to troubleshoot Mike, and they discuss on what kind of jokes are funny and not funny. The narrator seeks to convince Mike that some “pranks” that will not cause permanent damage are funny, so that Mike will occasionally malfunction and he will be called in to troubleshoot. Mike also reveals that no one else is aware of his self-awareness, as no one else has tried to converse with him. The narrator and Mike install a phone line for Mike so that he can converse with other people even when the narrator is not available.

The narrator's name is revealed to be “Manuel Garcia O'Kelly.”

He attends a meeting of revolutionaries, intending to record the meeting for Mike. He meets an attractive woman named Wyoming Knott. Several of the revolutionaries give speeches, including Wyoming and Professor Bernardo de la Paz. Wyoming insists that the Lunar Authority must be overthrown and a free market should be established. Prof. de la Paz goes further, stating that food exports from Luna to Earth must be stopped, as the water used for agriculture is being shipped to Earth and will never return to Luna, which makes maintaining a self-sufficiency impossible.