Launcelot Gobbo, Shylock's servant, is debating whether to leave his master. Jabbering to himself, he imagines that a "fiend" is urging him to run away, while his conscience instructs him to remain. Launcelot finds himself in a quandary. He feels obligated to stay with his master; yet he thinks it cannot be right to continue serving a Jew whom he considers "the very devil incarnation" (2.2.26).
Launcelot, a kind of clown character, finds himself in a moral dilemma. On the one hand, he has his conscience, which pushes him toward obedience to Shylock, his master. On the other is his prejudice, which he describes as a kind of fiend, and which sees Jews as devils.
Launcelot has just resolved to leave Shylock for good when his father, the blind Old Gobbo, appears. Gobbo asks Launcelot whether he knows the way to Shylock's house. Amused that his father has not recognized him, Launcelot decides to play a prank on him by giving him bad directions. Then Launcelot plays an even crueler trick: he tells Gobbo that his son has died. Only when Gobbo exclaims with grief does Launcelot reveal himself.
This scene of cruelty, in which a child abuses his parent, foreshadows how Shylock's daughter, Jessica, will abandon him. It also makes Gobbo's blindness an interpretive handicap: he literally cannot see things.
After some confusion, Gobbo accepts that Launcelot is indeed his "own flesh and blood" (2.2.88). Gobbo then asks his son how he is doing; Launcelot reveals that he's decided to go work for Bassanio before he is entirely corrupted by Shylock's influence: "I am a Jew if I serve the Jew any longer," (2.2.106–7) he says.
Launcelot speaks of flesh and blood—that is, man's animal being—as the basis for being related. Launcelot also brings up an important question about identity: Can one become a Jew, or is Jewishness inborn and inescapable.
At this moment, Bassanio arrives with Lorenzo and several followers. Launcelot and Gobbo seize the opportunity and beg Bassanio to employ Launcelot so that he can escape Shylock's service. Once he figures out what they're asking, Bassanio readily accepts. Rushing off, Launcelot assures Bassanio that he will "take leave of the Jew in the twinkling of an eye" (2.2.167) and will not even say farewell to Shylock.
Prejudice against Jews is used to cement bonds between Venetians of different social classes. It seems unlikely that Bassanio would have hired Launcelot away from another Christian. Launcelot seems to feel no bond to Shylock despite having served him for years.
As Launcelot is leaving, Gratiano enters. He asks to accompany Bassanio to Portia's estate at Belmont. Bassanio agrees, but with the condition that Gratiano must control his infamous "wild behavior" (2.2.178) to prevent it from reflecting badly on Bassanio. Gratiano teasingly assures his friend that he will "put on a sober habit" and "swear but now and then" (2.2.180–1). Gratiano then says he must go see Lorenzo, but that he will come to Bassanio's house for supper.
By applying the animal word "wild" to Gratiano, when most animal abuses are directed at Shylock, Shakespeare narrows the gap between Venetians and Jews. That Bassanio is willing to take Gratiano on as a companion, despite his evident bad behavior, shows the strength of social bonds among Venetian Christians.