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.

The meeting is interrupted by guards who are armed with and shoot lethal weapons.

Wyoming does blackface to hide from the authorities.

Manuel and Wyoming check into a hotel together. They converse while eating. Manuel describes his family situation, which is a “line marriage,” where there are each husband marries all wives, and each wife marries all husbands. New spouses can be added with unanimous consent. Wyoming reveals that she had a baby with a congenital defect, a “monster.” Because of this experience, she divorced her twin-husbands, got sterilized, and became a “Free Woman.” The congenital defect was caused by her exposure to solar radiation as a child immigrating to Luna, which made her realize that the Authority does not care what happens to outcasts. Manuel tells Wyoming that her vision of establishing a free market on Luna is impossible, as those who have the ability and willpower to become economically independent from the system have already done so, as Manuel's family has. Manuel calls Mike, calls his home anonymously through Mike, and considers introducing Wyoming to Mike as a potential conversation partner.