In chapter 5, what is Simon referring to when he says, "maybe it's only us that we're afraid of"?

In this quote, Simon is referring to the evil inherent to human nature. Simon clearly perceives that, despite the trappings of modern society, man still retains the characteristics of the beasts he ostensibly fears.

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In chapter 5, Ralph holds an assembly and chastises the boys for not completing necessary tasks or following his directives. After criticizing the boys for their negligence and disobedience, Ralph brings up the subject of the beast and says that they must decide that there is nothing to it. Ralph understands that fear is the biggest obstacle in the way of their happiness and insists that there is nothing to boys' belief in the beast. Both Jack and Piggy agree with Ralph's assessment of the beast and believe that it is simply a figment of the littluns' imaginations.

The boys continue to argue over the existence of a beast before Simon speaks up and says, "Maybe...maybe there is a beast." The biguns are astonished by Simon's comment, and he proceeds to say, "What I mean is...maybe it’s only us." Unlike the other boys, who believe that the beast is a tangible, menacing creature roaming the island, Simon possesses a unique understanding and knowledge of the beast. Simon understands that the beast is the inherent wickedness inside each child. The beast is mankind's primitive nature, which is awakened in an environment without rules, regulations, or adults. Later on, Simon hallucinates and speaks to the Lord of the Flies, which confirms his belief that the beast is not something that can be killed and is instead the inherent evil inside each boy.

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When he says, "Maybe it's only us," Simon understands the concept of psychological projection, or "blame shifting," as it is commonly called.

This observation of Simon's goes to the heart of William Golding's allegory of human nature. Simon, who is intuitive and sensitive to the spirit of others, eventually recognizes the innate bestial (i.e. brutal or savage) qualities that lie within the human heart. For instance, in Chapter Four, he has observed Jack's beastly cruelty to Piggy as Jack punches Piggy in the stomach and breaks his glasses as Piggy is hit in the head. 

In Chapter Five Ralph calls a meeting and outlines the important things that must be done. But, his attempts to restore order are disrupted by talk of the beast. One little boy named Percival suggests that the beast might come out of the sea because his father has told him that there could be creatures in the ocean. As the boys argue among themselves about the beast, Simon makes an effort to explain that they are trying to objectify what is actually something in themselves; they are "blame shifting." However, Simon stumbles,

"What I mean is...maybe it's only us....We could be sort of..." [Penguin edition does not contain "that we're afraid of"]

Simon tries to suggest that the beast may be something within themselves, but he

...became inarticulate in his effort to express mankind's essential illness.

When he, then, tries to give a comparative example, this, too, fails. It is not until later in the novel when Simon confronts the Lord of the Flies that he finally acquires the capacity to articulate the evil inherent in humans.  

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What Simon knows, and the rest have yet to discover, is the magnitude of Jack and his gang's savagery. When he says "...maybe it's only us that we're afraid of” he means that maybe we know that there isn’t a beast, but it’s easier to fear the beast than it is to face the reality that we’re actually afraid of each other.

Simon is trying to convince the boys that they do not need to fear the beast. Simon knows that Jack created the beast to make the members of his gang fearful. By instilling fear, Jack tries to make himself out to be a better leader than Ralph by offering his protection from the beast.

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