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The Underground Man, our first-person narrator, begins by telling us how hateful and unattractive he is. It seems he's been living "underground" for 20 years, unable to act in any way because he's so intelligent he can debunk any justification for doing so. Intelligent men, he says, can never become anything – and he himself is the case in point.
The Underground Man reveals that he is 40 years old and living in St. Petersburg, Russia. He used to be a civil servant, but he inherited some money and retired, all the more time for discoursing on his life's many problems. Despite his surroundings of mire and filth, he sometimes experiences attacks of "the sublime and beautiful," American Beauty-style moments where is taken by the awe-inspiring things of the world (art, philosophy, love). His narration takes the form of a retort – he imagines his reader responding to his absurd claims, so he fills in our half of the conversation and then responds in turn.
His first big argument concerns free will and the laws of nature. He chooses 2+2=4 to represent all the laws of reason, and asks how we can all be free if we have to accept 2+2=4, even if want it to equal five. A normal man, a man of action, will just accept it, but he, a man of hyper-consciousness, cannot.
Next we move to the subject of suffering. Suffering, the Underground Man argues, is enjoyable, particularly when you're conscious of it. For instance, when he knows he's at rock bottom and has no chance of ever getting better, he takes pleasure in that.
Intentional suffering, he later explains, has a lot to do with free will and the laws of nature that we've already mentioned. The Underground Man considers that we may someday figure out all the laws of nature, and then be able to predict what everyone will do, think, and want. Were this to happen, he predicts, man would just go mad to escape the determinism. If you tell man that he will act according to reason, that he will always pursue his best interests, he will consciously act against that just because he can. Man will cause destruction and chaos to prove that he has free will.
The Underground Man uses this as a reason to reject the idea of a perfect socialist society referred to as "Crystal Palace." Free will doesn't allow it, and besides, he would resent a structure which he couldn't deride. He also argues that man loves building things, not having a finished product. We wouldn't be satisfied with perfection, because there would be nothing left to do.
As Part I draws to a close, the Underground Man tells us that he will never have readers; his audience will always be imaginary.
We move into Part II, which is made up of the Underground Man's reminiscences back to when he was 24 years old. Before the flashbacks start, however, he complains for a while about Romanticism. He dislikes silly, cloud-gazing romantics from France and Germany. To him, Russian romantics are a very different sort, capable of appreciating the sublime and beautiful, but still rooted in reality. He seems to fancy himself one of these Russian romantics, and often indulges in literary fantasies of the sublime and beautiful.
Now onto his memories. The first story concerns an officer who greatly offended our narrator by…taking him by the shoulders and moving him out of the way one night in a tavern. (The horror!) The Underground Man harbors his spite for years and plots revenge, deciding to bump into the officer intentionally while walking along the Nevsky (the major central street in St. Petersburg). The plotting and planning drags on, and when the bump finally goes down, the Underground Man gets the worst of it as the officer doesn't even notice.
The next story (this is another flashback of the young Underground Man) involves a going-away dinner for an alpha-male named Zverkov whom, big surprise, the Underground Man hates. The Underground man invites himself along to the dinner, thrown by several mutual friends, and makes an utter jerk of himself by insulting everyone many times over. The men leave him behind to continue their evening at a brothel, and the Underground Man follows shortly after.
By the time he gets there, the men are gone. The Underground Man doesn't leave, though – instead, he sleeps with a prostitute named Liza. After they have sex, he lectures Liza on how she really shouldn't be a prostitute, as it's not good for her soul. She weeps; and he gives her his address.
The Underground Man then goes home and, for a week or two, has a strained tiff with his servant Apollon, whom he also hates. One day, Liza shows up. They have an intense spat that ends with the Underground Man breaking down in tears. Liza comforts him, they have sex again, and then he goes back to being sullen and offensive, hinting for her to leave and stuffing money into her hand to insult her further.
Liza peaces out but leaves the cash behind, which the Underground Man finds to be unexpectedly noble. He chases after her. It's too late; she's gone. And that's the end of his flashback.
Now we're back with the 40 year old Underground Man, who is ready to end his Notes. He tells us that we all live life based on what we read in books (himself included, given his attempts at revenge and saving a prostitute Pretty Woman-style), and that we're all retreating further and further into the abstract world of ideas. He concludes by saying that he doesn't want to write anymore from underground. An appended note (apparently written by someone other than the Underground Man) informs us that, actually, he couldn't stop writing, but at least for readers, "it seems to us that we may stop here."