David and Steerforth spend a couple of weeks in Yarmouth. Since Steerforth enjoys sailing, he often goes out on the ocean with Mr. Peggotty while David spends time with Peggotty or visits Blunderstone. David uses these excursions to return to memorable places from his childhood—most importantly, his parents' graves, where he spends time reflecting on what he will end up doing in life. The Rookery now houses only a "poor lunatic gentleman" and looks largely abandoned. In addition, some of David's old neighbors have moved away, while Mr. Chillip has remarried and has a child. Overall, revisiting his childhood home is a bittersweet experience for David, but he generally enjoys the memories once he is back in Steerforth's company.
The Rookery's new function underscores just how complete the loss of David's childhood home has been; not only is it no longer a home to David's family, but it's hardly a home at all anymore, serving instead as a makeshift asylum. Its new purpose also hints at the dangers of lingering too long on the past, since a place so central to David's memories now literally houses madness. Still, it makes sense that David returns to the Rookery as he tries to decide on a career, since the experiences he had there have helped shape him into the man he now is.
Whenever David returns from Blunderstone, he passes by Mr. Peggotty's house and checks in. On one occasion, he finds Steerforth alone there, so deep in thought that David's approach startles him unpleasantly. Steerforth says he has been looking at the fire and, given the house's current "wasted air," morbidly imagining the Peggottys are all dead or gone. He then startles David by changing the topic and wishing he had had a father, or that he at least could "guide himself better." Continuing on, he says he would rather be poor like Mr. Peggotty or Ham than be himself. Confused, David presses Steerforth to tell him what's wrong, but Steerforth laughs his bad mood off as an eccentricity in his character, though he once more wishes he had known his father.
Steerforth's premonition of the Peggotty family's fate does eventually come true, so this passage functions as foreshadowing. What's strange, however, is the fact that while Steerforth himself is ultimately responsible for the breakup of the Peggottys, he speaks in this passage as if he can't possibly prevent it. In a sense, Steerforth truly is powerless; because he hasn't learned to master his own desires and impulses, he's not truly in control of his own life. Steerforth attributes this failure to fully grow up to the death of his father, but David also lost his father at a young age and completes the transition to adulthood more successfully. Steerforth's immaturity probably has more to do with the fact that he grew up wealthy and spoiled than anything else.
Shortly afterwards, Mrs. Gummidge arrives, and Steerforth's mood further improves. He and David plan to depart the following day, however, and Steerforth is sad to leave the sea; although he acknowledges that his wishes are "capricious," he is enjoying his time out on the ocean. David, meanwhile, wonders aloud why Steerforth does not put one of his many talents (such as sailing) to good use. Steerforth once again admits that his interests and goals are fickle, and says that he has bought a boat to sail whenever he is in Yarmouth. David, however, assumes that Steerforth has really bought the boat for Mr. Peggotty's benefit and is simply too modest to say so. Steerforth passes over this, saying that Littimer has arrived in Yarmouth and will oversee repairs on the boat, which he intends to name the Little Em'ly.
Steerforth's lack of self-control is partly the result of his class status. David can't understand why Steerforth doesn't turn one of his interests or talents into a career, but the simple fact is that Steerforth doesn't need to: he has enough money to drift from hobby to hobby without ever actually working. As a result, Dickens implies, he never learns the virtues that pursuing a career entails (most notably, discipline and steadiness). This is one way in which the novel's middle-class perspective colors its depiction of the upper classes: because they don't have to work, the upper classes are in some sense necessarily immoral (or at least amoral).
At that moment, little Em'ly herself approaches with Ham, who is very attentive to and protective of his fiancée. They stop and chat with David and Steerforth, and David notices that Emily does not replace her hand on Ham's arm when they continue walking. He also sees a poor and miserable-looking woman following Emily and Ham (this will later turn out to be Martha Endell). David assumes the woman must be a beggar, but Steerforth is disturbed by the idea of her following little Em'ly, and says he had a premonition of something like this.
Despite Ham's obvious love for Emily, it's equally clear that Emily doesn't share his feelings. The fact that she's reluctant to touch him frames her unwillingness to marry specifically in terms of an absence of physical attraction. The appearance of Martha—a "fallen" woman—also hints at the role that sexuality plays in the breakup of Emily and Ham's relationship, and foreshadows what may happen to Emily herself.
David and Steerforth go to dinner, where they meet Littimer, much to David's dismay. Toward the end of the meal, Littimer announces that someone called Miss Mowcher is downstairs and would like to see Steerforth. Steerforth appears to know her and is excited about the prospect of introducing her to David. Littimer duly fetches Miss Mowcher, who turns out to be a dwarf. She is a talkative woman with a "rogueish" look, and immediately begins to tease Steerforth about what he is doing in Yarmouth, and whether he would think she was a "fine woman" if he saw her looking out a window (that is, if he only saw her face).
Although David himself only learns the truth later, Miss Mowcher's entire manner is a carefully crafted act. As someone with dwarfism, she has few options when it comes to supporting herself; society at large sees her as comical, so she plays to this stereotype. Her joking flirtatiousness with Steerforth also reveals how sexless and unfeminine she is in the eyes of society; the joke hinges on the supposed absurdity of anyone finding her attractive. At the same time, the fact that Miss Mowcher is perceived as unfeminine allows her to speak much more freely and boldly than a "real" woman of the time could.
Miss Mowcher, who is a hairdresser, begins to gossip about a client she visited a week ago, but refuses to tell Steerforth whether Lady Mithers dyes her hair and wears makeup. Meanwhile, David stares at Miss Mowcher, impressed by how cunning and knowledgeable she seems to be. Miss Mowcher, who has been setting out a variety of hairdressing supplies, suddenly pauses her work and asks who David is. Steerforth introduces him, and Miss Mowcher pinches David's cheek and teases him over his politeness. She then takes something from her bag that she says is fingernail clippings from a Russian prince and talks about how she dyes his moustache for him. She also explains that she carries the nail clippings around to advertise her business, and laughs that "the whole social system" is "a system of Prince's nails."
Miss Mowcher's gossip centers mostly on the hypocrisy of her clients, who pride themselves on physical characteristics that are actually artificial. By extension, Miss Mowcher's words are also a commentary on the artificiality of society as a whole, including the class structure and gender roles that everyone perceives as natural, but are actually social constructs. In particular, her remark that the whole social system hinges on "Prince's nails" reveals how flimsy these social constructs truly are. Steerforth, however, is not self-aware enough to realize that he is also implicated in Miss Mowcher's critique, and laughs along with her.
Miss Mowcher gets up on a table so she can reach Steerforth's hair, exclaiming that she will kill herself if David or Steerforth glimpsed her ankles as she was climbing up. She then inspects Steerforth's hair, tells him he would soon go bald without her help, and begins treating him with different oils and potions. As she works, she talks about another client, Charley Pyegrave, who tried to buy a solution to dye his own hair and was asked if he wanted "rouge" (blush or lipstick). She then laughs about all her female clients who wear makeup but refuse to admit it.
On the one hand, Miss Mowcher's anecdotes about makeup tie into a lengthy tradition of associating cosmetics with female deceit and vanity. Within the context of Miss Mowcher's own experiences as a little person, however, her remarks also hint at the impossibility of perfectly conforming to the feminine ideal: women are supposed to be beautiful, but also shamed for attempting to make themselves beautiful.
Miss Mowcher says she hasn't seen a single pretty woman since coming to Yarmouth, and Steerforth jokes with David that they could show her one—meaning little Em'ly. Miss Mowcher asks whether the woman is David's sister, and Steerforth replies that she actually used to be his sweetheart. Miss Mowcher teases David about this, and David—somewhat annoyed—says that Emily is engaged, and as "virtuous as she is pretty." Steerforth agrees with David, adding that Emily is currently apprenticed at Mr. Omer's, and that she is engaged to Ham Peggotty—though he (Steerforth) thinks she was "born to be a lady." Miss Mowcher says that the story should end in "happily ever after" and looks at David with "extravagant slyness."
Dickens continues to foreshadow Emily and Steerforth's affair in this exchange, not only in Steerforth's clear admiration of Emily, but also in David's defensive remark that she is "virtuous." Meanwhile, Steerforth's remark about Emily's genteel demeanor points to the contradictions involved in Victorian ideas about class. On the one hand, it suggests that certain "deserving" people ought to be able to rise socially, but it also implies that the traits that make them deserving are innate: Emily, in Steerforth's view, already is a lady who simply happened to be born to a working-class family.
Miss Mowcher declares Steerforth's hair finished and asks if David would like his done as well. David declines, becoming embarrassed when Miss Mowcher mentions helping him to grow whiskers. Miss Mowcher climbs down, assembles her things, and leaves, but not without first joking that she will "break [David and Steerforth's] hearts" by doing so and offering to leave a lock of her hair. Steerforth then explains to David that Miss Mowcher's job gives her access to (and insight into) a large number of people, and that she is a very shrewd woman. David wants to know whether Miss Mowcher is a good person, but does not learn much from Steerforth on this point.
David's continued embarrassment over his inability to grow a beard is a product of insecurity: he realizes on some level that he is not fully mature, but is anxious to hide this from the world at large. Miss Mowcher's flirtatiousness, meanwhile, again uses her undesirability (by the narrow standards of the time) as a source of humor.
Later that night, David returns to Mr. Barkis's house only to find Ham waiting outside. Ham explains that Emily is inside, talking to an old friend who is now a disreputable woman. David quickly realizes that this must be the woman he saw following little Emily and Ham earlier, and learns from Ham that her name is Martha. Martha begged Emily to speak with her as a fellow woman, but Mr. Peggotty wouldn’t allow the conversation to take place in his house. Emily therefore instructed Martha to meet her at her aunt Peggotty's. Meanwhile, she entrusted Ham with a purse full of money, despite his disapproval of Martha.
Mr. Peggotty's (and, to a lesser extent, Ham's) discomfort with the idea of Emily speaking to Martha reveals just how strict the norms governing female sexuality in the nineteenth-century truly were. Although little Em'ly's compassion and generosity reflect "feminine" selflessness, the danger of Martha somehow infecting Emily with her own sexual looseness is so great that Emily's own actions become suspicious.
Eventually, Peggotty opens the door and motions for Ham and David to enter the house. Once inside, David sees Martha kneeling on the floor and little Em’ly standing nearby. Little Em'ly says that Martha wants to go to London, and Martha explains that doing so would allow her to avoid people who know her and her story. Ham is suspicious and asks what Martha will do in London, but Emily assures him that she will "try to do well." Ham therefore hands over the purse, and Emily gives some of the money inside to Martha, who quickly slips away afterwards.
Ham's suspicion of Martha's motives reflects the widespread belief that a woman who had transgressed sexually could never redeem herself. Dickens, however, suggests that to the extent that this was true, it had more to do with society at large than the woman's own morality: Martha, for instance, is unable to find meaningful work in Yarmouth because people know her reputation.
As soon as Martha leaves, little Em'ly begins crying and tells Ham that she is not as "good" as she should be. More specifically, she thinks she has often been unkind to Ham, who has only ever been generous and loving to her. Ham attempts to reassure Emily that she makes him happy, but she says that that is only proof of his own goodness, and that he would be better off with another woman. Eventually, Emily turns to embrace Peggotty, begging her, Ham, and David to help her be a better person. After a while, they are able to calm little Em'ly down, and David notices that she sticks closer to Ham the rest of the night than she typically does.
Emily's distress stems from the fact that she sees her own dark future in Martha's widespread disgrace and desperation.