Stephen spends the summer in his family's new house in Blackrock, a town near Dublin. He enjoys the company of his Uncle Charles, a lively old man who smokes horrible "black twists" of tobacco and allows the boy to take handfuls of fruit from a local vendor. Every morning, Stephen and Uncle Charles take a walk through the marketplace to the park, where Stephen meets Mike Flynn, a friend of his father's. Flynn tries to train Stephen to be a runner, but Stephen doubts whether he will ever be very successful. After training, Stephen goes to the chapel with Uncle Charles for morning prayers. Stephen respects his uncle's piety but does not share it.
Stephen takes weekend walks through the town with his father and uncle, listening to their political discussions and their stories about the past. Stephen does not understand many of their references. At home, Stephen reads Alexandre Dumas's novel The Count of Monte Cristo, and is deeply engrossed in its adventure and romance. Stephen imagines himself as the lover of Mercédès, the novel's heroine.Ashamed of his father's poor management of the family's finances, Stephen uses the imaginary adventures of Dumas's novel as an escape. He befriends a young boy named Aubrey Mills, who becomes his constant companion in reenacting the adventures of The Count of Monte Cristo. Stephen feels that he is different from the other children he knows, and that he is in touch with a higher world. He imagines a future moment in which he will be transfigured by some magic revelation.
The Dedalus family begins to feel its financial troubles more acutely, and the moving men arrive to dismantle the house for a move to Dublin. In Dublin, Stephen enjoys more freedom than before, as his father is busy and Uncle Charles has grown senile. Stephen explores the city and wanders along the docks, still imagining himself as the Count of Monte Cristo. He is taken on visits to see his aunt and to see another elderly female relative.
Stephen senses in himself a new mood of bitterness, as he criticizes his own foolish impulses but finds himself unable to control them. His interactions with his aunt are awkward and result in misunderstandings. At a birthday party for another child, Stephen feels no gaiety or fun, and merely watches the other guests silently. Though he sings a song with the others, he enjoys feeling separate from the other children. However, he is attracted to one of the girls, E. C., at the party. They leave the party together and take the same tram home, riding on different levels but conversing for the entire ride. Stephen is attracted to the black stockings she wears, and recalls Eileen Vance. He wonders whether E. C. wants him to touch her and kiss her, but he does nothing.
At home, Stephen writes a love poem in his notebook, titling it "To E— C—" in imitation of Byron. He finds himself confusingly overwhelmed by a longing for romance. As summer comes to an end, Stephen is told that he will be going to a new school because his father is no longer able to afford Clongowes.
These early sections of Chapter 2 are dominated by a sense of decline, which manifests itself in several different forms. Stephen sees the reliable constancy of boyhood give way to a new sense that people and places change, and very often get worse. Uncle Charles is a sympathetic, eccentric figure in the first section of the chapter, but by the second has become senile and can no longer go out with Stephen. Similarly, Mike Flynn had once been a great runner, but now looks laughable when he runs. Most important, the Dedalus family's financial situation falls from relative prosperity to near poverty. The moving men's dismantling of the family home mirrors the dismantling of Stephen's earlier naïve faith in the world. Indeed, witnessing this slow slide into mediocrity affects Stephen deeply and directly. He is unhappy even in the company of all his relatives at Christmastime. In part, Stephen is angry with himself, but he is also angry with his change of fortune and his own changing relationship with the world around him. Stephen still feels set apart from the world, but here we begin to see the development of his capacity for moral criticism.
While the world around him declines, Stephen's own sensitivities become more acute. In particular, we see the development of his attitude toward literature. Just as Stephen identifies with the protagonist of the children's story that his father reads to him at the beginning of the novel, he now imagines himself as the Count of Monte Cristo. These two experiences of reading show how Stephen's identification with a literary character shapes his perceptions of himself. Unlike the young boy in the children's story, Stephen's new role model, the count, is active, adventurous, heroic, and even somewhat dangerous. Like the count, who is a pursuer of vengeance and a righter of wrongs, Stephen is frustrated with the unfairness he sees in the world. In showing these relationships that Stephen forges with literary characters, Joyce implies that literature is not necessarily a solitary pursuit. Indeed, Stephen's friendship with Aubrey Mills is largely based on a shared passion for imitating Dumas's novel. Literature also helps guide Stephen's newly burgeoning sexuality, which he is able to channel into dreams of pursuing Mercédès, the heroine of The Count of Monte Cristo. Stephen finds romantic models in literature again when he uses a love verse by Lord Byron as a model for the poem he writes to E. C., the girl after whom he lusts at the birthday party. The intertwining of life and literature foreshadows the later ways in which the "Artist" and the "Young Man" of the title—one who creates art, and another who lives life—complement and reinforce each other.
Stephen's love interests develop in a complex manner. He experiences a tension between his somewhat awkward real-life erotic encounters and his idealized vision of gallantly pursuing Mercédès, the heroine of Dumas's novel. Yet Stephen's vision of ideal love is less a desire for a perfect love object than a hope of possessing a woman. The Count of Monte Cristo, on whom Stephen models his own idea of love, ultimately rebuffs Mercédès with the pithy rejection, "Madam, I never eat muscatel grapes." Stephen's fantasy, then, is not one of a love-filled romance, but one of repudiating a woman who desires him. The ambivalent nature of Stephen's desire manifests itself again when he stares, smitten, at a girl at a party, but then lets nothing come of it. Indeed, while he is staring, Stephen actually contemplates not the girl at the party but his first crush, Eileen Vance, whom he had watched years before. Unlike that of a traditional romantic hero, Stephen's desire for women is jumbled and confusing.