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The story opens as Dr. Holmes visits the apartment of Sherlock Holmes who is interviewing a man with flaming red hair. As he apologizes for his intrusion, Holmes quickly leads him into another room, telling him that he could not have arrived at a more propitious time because this new case will appeal to Watson's love of the bizarre. He tells Watson,
"You will remember that....for strange effects and extraordinary combinations we must go to life itself, which is always far more daring than any effort of the imagination.”
Further, he explains that Mr. Jabez Wilson has come to him with a most "singular" narrative, and it promises to be a very intriguing case. So, Dr. Watson remains and observes the British tradesman who talks with Holmes. pulling an advertisement from his pocket to which his assistant, Vincent Spaulding brought to his attention. It is a call to men with red hair who are of good health, entitling them as a member of the Red-Headed League to a salary of four pounds per week for nominal services.
Holmes then questions Mr. Wilson about his employee, whom Wilson describes as an obliging youth who is willing to work for lower wages and loves to take photographs, rushing downstairs to develop them. He also expressed his wish that he were red-headed so he could join this league founded by an American millionaire named Ezekiah Hopkins. This he does and comes for an interview with Mr. Duncan Ross, one of the pensioners upon the fund, who is disappointed that Wilson is not married as Hopkins wished the aid the propagation of red-heads. Nevertheless, Wilson is hired and works from two until four in the afternoons, copying an encyclopedia. But, one day when he reports to work after being there for eight weeks, but the door is locked and a sign reads "The Red-Headed League is Dissolved. Distraught, Wilson goes to the landlord of the office, who tells him that a solicitor named Morris, not Ross, rented the office until his new premises were ready. Mr. Morris's new address is 17 King Edward Street, near St. Paul's cathedral. But, when Wilson goes there it is a "manufactory of artificial kneecaps."
Sherlock Holmes assures him that he can solve this mystery, which he believes involves graver issues.
"Grave enough!" said Mr. Jabez Wilson, "Why, I have lost four pounds."
Holmes retorts that Wilson is really thirty pounds richer by the Red-Headed League. But, this expensive joke must lead to something else. Then, he asks Wilson to describe his assistant for him, and somehow knows that Spaulding's ears have been pierced. Holmes then dismisses Wilson, promising him a solution by Monday; he subsequently asks Watson not to speak to him for fifteen minutes while he sits still and smokes his pipe. Finally, he suggests that he and Watson go to hear Saraste, a Spanish violinist via the Underground. When they come up from the subway, Holmes passes the pawnbroker Wilson's shop, all the while inspecting the area; then, he pounds on the pavement with his walking stick, after which he knocks on Wilson's door. When a "bright-looking, clean-shaven young fellow" answers, Holmes asks directions to the Strand, a major London street. After the door closes, Holmes remarks that he has seen him before and noticed the knees of his trousers. Watson asks him why he pounded the pavement, but Holmes does not respond.
After they have enjoyed the concert and Holmes has strolled happily around, "the lust of the chase" comes upon him. He asks Watson to return at ten that evening on Baker Street with his revolver. When he returns, Watson encounters an inspector from Scotland Yard named Peter Jones, and Mr. Merryweather, a bank director of the City and Suburban Bank located in this district with Wilson's pawnshop. In the subterranean vaults of the bank, there is a shipment of thirty thousand gold coins from the Bank of France has recently arrived. Holmes tells the others that they may had to wait for some time, but they are playing for high stakes:
For you, Mr. Merryweather, the stake will be some £30,000; and for you, Jones, it will be the man upon whom you wish to lay your hands.”
“John Clay, the murderer, thief, smasher, and forger. He's a young man, Mr. Merryweather, but he is at the head of his profession, and I would rather have my bracelets on him than on any criminal in London,"
replies Jones, about whom Holmes tells Watson that he is not bright, but as brave and tenacious as a bulldog. After an hour or so, the men perceive a slit of light coming from the floor, as a paving stone moves, a man climbs out, hauling another with him. At that moment Holmes snares one of them, and the other retreats into the hole again. Underneath Inspector Jones grabs this one; light flashes upon the barrel of a gun, but swiftly Holmes knocks the gun from the wrist with his hunting crop. "It's no use, John Clay....You have no chance at all."
Upon their return Holmes explains how he solved the crime. When he heard that the young man worked for half wages, Holmes suspected an ulterior motive. Then, having been told that the assistant constantly ran to the cellar to develop film led him to think that there was something somewhere nearby that the assistant wanted by way of this cellar. Holmes made inquiries about the young man and learned that his description matched one of the most daring criminals in London. In order to connect the Red-Headed League, Holmes figured it was a ploy to get Wilson out of the office for a specific time each day so that a tunnel could be dug to the bank, a tunnel that took months to create.
When Holmes beat upon the pavement, he was trying to ascertain whether the cellar stretched out in front of the building or behind. His ringing of the bell was to confirm his suspicions about Clay and to view the knees of his pants, which "spoke of those hours of burrowing." His walking behind the pawn shop and seeing the bank, led Holmes to the reason for all the other actions. He figured that the hoist would be Saturday since businesses were closed and they would have two days to escape; also, the Red-Headed League was closed, an indication that the tunnel was completed since Mr. Wilson's presence at the store would no longer matter.
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