"The author at his master's command, informs him of the state of England. The causes of war among the princes of Europe. The author begins to explain the English constitution.
Gulliver tells the Master Horse about some recent English history: the Glorious Revolution in 1689 and the War of the Spanish Succession from 1701 to 1714.
(The Glorious Revolution took place when the Protestant English Parliament decided that it did not want a hereditary monarchy of Catholics to rule the country – then-king James II and VII was a Catholic. So, Parliament decided that it had the power to appoint kings, and invited Dutch Protestant leader William of Orange to become William III of England. James II and VII fled to France and became the center of the Jacobite movement. The Glorious Revolution ushered in the reign of William and Mary, from 1689 to 1702 (source).
(The War of the Spanish Succession – oh God, this is complicated. Okay, so basically, there are four major European powers in competition at this point, the Spanish, the English, the French, and the Austrians. They are competing not only in Europe, but also for control of their colonial properties in the Americas.
King Charles II of Spain is growing old and has no children, so everyone's just waiting to see who's going to control the lands Spain has conquered.
England and France form an alliance against Leopold I of the Austrian Empire, but then France strikes out on its own and everything gets even less stable.
Finally, after plenty of expensive warfare, the upshot for England is that France signs over several of its territories in Eastern Canada, Britain gets commercial privileges in Spanish colonies in America, and the French promise not to support any of the exiled members of deposed king James II and VII's family (source).
The Master Horse wants to know why humans go to war. Gulliver answers: (1) ambition to conquer, (2) corruption of the government, (3) differences of opinion. Wars over opinions are the worst kind.
Here, the Master Horse says something really quite tragic: he tells Gulliver that, with all of this warlike nature, it's lucky that humans can't do too much damage to each other because their mouths aren't designed for easy biting.
Gulliver explains weapons and the damage that humans can do to each other.
The Master Horse stops Gulliver here, and says that he can't hear any more about war because it's too disturbing. Gulliver's tales have only made him hate Yahoos more and more.
The Master Horse thinks we don't have reason or rationality at all – we have some other thing that allows us to practice our bad qualities as much as possible.
The Master Horse is confused about law: how can laws be bad? How can laws ruin men, when they are designed to save them?
Gulliver explains about lawyers, who, he says, are trained from babyhood to defend anything, especially lies, so they have no sense of justice.
What's more, judges often prefer to agree with what appears obviously untrue, so people with right on their side may only win if they pretend that right is wrong.
Gulliver talks about precedent: anything that has been done before may legally be done again.
Lawyers like to split hairs and talk about irrelevant details to distract from the simple facts of all their cases.
They have their own private way of speaking, which excludes ordinary people from either understanding or making laws.
People in power can decide to convict others accused of crimes against the state because they have influence over the judges.
The Master Horse comments that it's a shame that they spend so much time training lawyers to be lawyers and not teaching them to be knowledgeable and wise.