Lily is taking a walk around Bellomont with Selden.
Lily is conflicted; she feels excited at "escaping" the gilded cage of society with Selden, but she also feels scared at the risk of losing Percy.
She wonders briefly if she feels love for Selden. She's only been in love once before, with a man named Herbert Melson, who ended up marrying one of the Van Osburgh daughters.
Lily muses on what it is about Selden she likes so much. She believes he acts as though he's part of a superior race – even more so than the richest men she knows.
Selden admits to Lily that he came to Bellomont to see her, not Mrs. Dorset. He says Lily is a "wonderful spectacle" and he wanted to see what she was up to.
He also calls Lily out on her manipulative abilities. He thinks she's probably using him somehow to get to Percy – not that it bothers him.
Lily admits to herself that this is about right – she doesn't want to seem over-eager with Percy, anyway.
They banter some more, this time about the definition of success. Lily says it is to get as much out of life as one can. Selden disagrees; he thinks success is personal freedom. (Important stuff, readers.)
Lily admits she only knows personal freedom around Selden.
This lament hits home for Selden; he realizes that Lily has a weakness, and that makes her more interesting to him (rather than just a pretty object to look at).
Selden tells Lily that she'll have a hard time finding personal freedom after she marries a rich man.
Lily counters that Selden sure spends a lot of time hanging around the socialite people he claims to despise.
This is true, he says, but he considers himself amphibious – he can live in her world, but he can breathe in another environment as well.
After they talk some more about marriage and society, Lily concludes that her future is rather miserable, and that it looks even worse when she sees it through Selden's eyes.
She particularly resents that he condemns her life choices without offering her any alternatives.
Selden admits that, no, he has nothing to offer her as an alternative – but if he did, he would give it to her.
Lily cries a bit and he tries to comfort her. She asks if he wants to marry her; he says no, but if she did, then he would. (Argh.)
Then, they go back and forth calling each other cowards.
Basically, they both know that if Lily did marry Selden she couldn't maintain her current (and very expensive) lifestyle. Lily says that she would look hideous in the "dowdy clothes" she would have to wear as a woman of limited means, but that at least she knows how to trim her own hats.
This light note effectively ends the conversation, and the couple heads back to the house.