A great tournament is held, and the Yankee dispatches a priest from his Department of Morals and Agriculture to report what happens in anticipation of someday starting a newspaper. While he is waiting for his turn to enter the lists, Sir Dinadan joins the Yankee in his private box and tells him a humorous anecdote, which the Yankee has heard many times before and considers particularly vile. He passes out as Dinadan goes off to joust and comes to just in time to see him unhorsed by Sir Gareth. Without thinking, he exclaims, "I hope to gracious he's killed!" Just at that moment, Sir Sagramor le Desirous is also unhorsed by Gareth and overhears the Yankee's words. Thinking they are intended for him, Sir Sagramor challenges the Yankee to meet him in the lists in four years when he returns from searching for the Holy Grail. The Round Table hears of the challenge, and the king suggests the Yankee should go out adventuring to gain renown, so he will be more worthy to meet Sir Sagramor in battle.
The Yankee declines, as he feels he needs the time to further implement his plans for industrialization, which have been coming along well so far. He has been training people in crafts and sciences and has agents out looking for those with special potential. He has instituted a school system and started a variety of Protestant congregations and separated religious instruction from secular education. He has also improved mining practices. Four years pass, and the Yankee has created a secret haven of nineteenth century industry with his despotic authority. He proceeds cautiously for fear of the Church and public reaction and sends out confidential agents to undermine the power of aristocracy and superstition. His most carefully guarded secrets are his military and naval academies.
Clarence has become his most trusted assistant, and he trains him in journalism in preparation to start a newspaper in his "civilization-nurseries." He has workers secretly lay underground telephone and telegraph lines. He sends out a topographical expedition to map and survey the kingdom, but the Church interferes and he withdraws so as not to antagonize them. The country at large is still in much the same condition as before, except that the Yankee has reformed taxation methods and quadrupled revenues while bringing much relief to the people, for which he gains considerable praise. Sir Sagramor is still out questing, but the time has come for the Yankee to go adventuring to augment his reputation in preparation for their joust.
Progress is a sort of religion to the Yankee; he turns knights into "iron and steel missionaries" of the civilization he wants to build. He sets out a number of requirements for this civilization, starting with a patent office, a school system, and a newspaper. He establishes a patent office the first day of his administration, demonstrating his belief in the value of intellectual property (an area in which he has a distinct advantage). He claims that a good newspaper is capable of reviving a dead country. Another important aspect of the Yankee's envisioned civilization is freedom of religion.
The Yankee is horrified by the easily corruptible power of a unified church. Because of this fear of the Church, he takes precautions to hide his centers of nineteenth-century culture from anyone but authorized personnel. The Yankee confines his commitment to freedom of religion to Christian sects. This may be partly for political reasons, but it is clear that he is himself devoutly Christian. He is a Presbyterian, just like Twain, perhaps denoting an autobiographical strain in the Yankee's portrayal. The Yankee believes in the perfection of a heavenly despotism, but he scoffs at earthly attempts to emulate this form of government, since no man is perfect and his successors are even less likely to be.