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Over the course of two years, Gulliver describes the state of affairs in Europe, speaking to his Houyhnhnm master about the English Revolution and the war with France. He is asked to explain the causes of war, and he does his best to provide reasons. He is also asked to speak of law and the justice system, which he does in some detail, criticizing lawyers severely in the process.
The discussion then turns to other topics, such as money and the different kinds of food eaten in Europe. Gulliver explains the different occupations in which people are involved, including service professions such as medicine and construction.
Gulliver develops such a love for the Houyhnhnms that he no longer desires to return to humankind. His master tells him that he has considered all of Gulliver’s claims about his home country and has come to the conclusion that Gulliver’s people are not so different from the Yahoos as they may at first have seemed. He describes all the flaws of the Yahoos, principally detailing their greed and selfishness. He admits that Gulliver’s humans have different systems of learning, law, government, and art but says that their natures are not different from those of the Yahoos.
Gulliver wants to observe the similarities between Yahoos and humans for himself, so he asks to go among the Yahoos. He finds them to be very nimble from infancy but unable to learn anything. They are strong, cowardly, and malicious.
The principle virtues of the Houyhnhnms are their friendship and benevolence. They are concerned more with the community than with their own personal advantages, even choosing their mates so as to promote the race as a whole. They breed industriousness, cleanliness, and civility in their young and exercise them for speed and strength.
Gulliver’s master attends a Grand Assembly of Houyhnhnms, where the horses debate whether or not to extinguish the Yahoos from the face of the Earth. Gulliver’s master suggests that instead of killing them, they should, as the Europeans do with their horses, merely castrate them. Eventually, unable to breed, the Yahoos will die out, and in the meantime the Houyhnhnms can breed asses to take their place.