The Yankee is clothed in expensive but uncomfortable raiments and given the best rooms in the castle, after the king's. The Yankee finds these still rather lacking in little conveniences like matches and soap and glass. Word of him spreads, and people come from far and wide to catch a glimpse of him. They begin to call for another miracle, and Merlin goes among them spreading rumors that the Yankee has no real power after all.
The Yankee has Merlin thrown into prison and declares he will destroy his stone tower with lightning from heaven in the space of a fortnight. He takes Clarence into his confidence to a degree and makes a batch of gunpowder, which he plants in the tower to be triggered with a lightning rod. He announces he is ready when a storm appears and has Merlin brought to the battlements in front of the king and court to try to save his tower. After a show of wild gesticulations from Merlin, he pronounces Merlin's magic weak shortly before the rod takes effect and the tower explodes. This satisfies the populace. The Yankee prevents the king from banishing Merlin and has his tower rebuilt for him.
The Yankee settles in and begins to enjoy his position as the most powerful person in the kingdom. He is upset by the widespread slavery and the position of even the free peasants as de facto slaves to the king and Church and aristocracy. He describes how the people look on him as a powerful animal, to be feared and admired but not reverenced, as no one without an inherited title can be respected (which he attributes to the influence of the Roman Catholic Church). He says he could have had a title from the king, but his principles kept him from accepting any title except one from the nation itself. After years of hard work and service, the common people decide on a title for him equivalent to "The Boss" in modern speech, and he is quite pleased with it. He likes the king and respects his office, but he looks down on him and all the nobles personally for not having earned their supremacy. In turn, they like him and respect his office but look down on him personally for not having a title. He accepts this arrangement and is satisfied with it.
The Yankee sees what an incredible opportunity has been given to him; his opinion of himself in relation to men of his own time is humble enough, but his estimate of his abilities in the context of the sixth century is rather arrogant. He values his vastly superior intellect over all else and calls himself the only great man in all England (a statement that is bound to annoy die-hard Arthur fans). He calls himself unique and gloats that he won't be surpassed in greatness for at least thirteen and a half centuries to come. He even places himself above Joseph, as his action of bringing the sun back to the sky is more popular with the common people than Joseph's mere "financial ingenuities," which benefited just the king.
He is shocked at the widespread illiteracy and aches for the little conveniences to which he is accustomed, which even servants cannot make up for; he compares himself to Robinson Crusoe building up some semblance of civilization from scratch. He feels up to the task, though. He feels superior to the monarchy and the aristocracy, who inherited their positions and have no real merits of their own in his opinion (an important theme in the book). He admits that his staunchly capitalistic opinions are prejudices just like the sixth century's belief in the righteousness of aristocracy. Because of his democratic ideals, he will only accept a title from the people, whom he regards as the true dispensers of power. A title of nobility would increase everyone's opinion of him, but he refuses to accept one, saying his family has always lacked the bar sinister (the implication being that all aristocrats are bastards).
A number of other themes also show up in this section. The Yankee's passion for showmanship at the expense of practicality appears as he triggers the explosion of Merlin's tower with a lightning rod instead of with a more predictable, non-weather dependent fuse. The Yankee's rivalry with Merlin also appears, which will be integral to the plot later. The Yankee hints that the Church will be a problem, saying it is more powerful than he and the king combined.