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The Mayor of Casterbridge begins at a country fair near Casterbridge in Wessex Michael Henchard, a 21-year-old hay-trusser, argues with his wife Susan. Drunk on rum-laced furmity he auctions her off, along with their baby daughter Elizabeth-Jane, to Richard Newson, a passing sailor, for five guineas. Sober and remorseful the next day, he is too late to locate his family. He vows not to touch liquor again for 21 years.
Believing the auction to be legally binding, Susan lives as Newson's wife for 18 years. After Newson is lost at sea Susan, lacking any means of support, decides to seek out Henchard again, taking her daughter with her. Susan has told Elizabeth-Jane little about Henchard, and the young woman knows only that he is a relation by marriage. Susan discovers that Henchard has become a very successful hay and grain merchant and Mayor of Casterbridge, known for his staunch sobriety. He has avoided explaining how he lost his wife, allowing people to assume he is a widower.
When the couple are reunited, Henchard proposes remarrying Susan after a sham courtship, this in his view being the simplest and most discreet way to remedy matters and to prevent Elizabeth-Jane learning of their disgrace. To do this, however, he is forced to break off an engagement with a woman named Lucetta Templeman, who had nursed him when he was ill.
Donald Farfrae, a young and energetic Scotsman passing through Casterbridge, helps Henchard by showing him how to salvage substandard grain he has bought. Henchard takes a liking to the man, persuades him not to emigrate, and hires him as his corn factor, rudely turning away a man named Jopp to whom he had already offered the job. Farfrae is extremely successful in the role, and increasingly outshines his employer. When he catches the eye of Elizabeth-Jane, Henchard dismisses him and Farfrae sets himself up as an independent merchant. Farfrae conducts himself with scrupulous honesty, but Henchard is so determined to ruin his rival that he makes risky business decisions that prove disastrous.
Susan falls ill and dies shortly after the couple's remarriage, leaving Henchard a letter to be opened on the day of Elizabeth-Jane's wedding. Henchard reads the letter, which is not properly sealed, and learns that Elizabeth-Jane is not in fact his daughter, but Newson's - his Elizabeth-Jane having died as an infant. Henchard's new knowledge causes him to behave coldly towards the second Elizabeth-Jane.
Elizabeth-Jane accepts a position as companion to Lucetta, a newcomer, unaware that she had had a relationship with Henchard which resulted in her social ruin. Now wealthy after receiving an inheritance from her aunt, and learning that Henchard's wife had died, Lucetta has come to Casterbridge to marry him. However, on meeting Farfrae, she becomes attracted to him, and he to her.
Henchard's financial difficulties persuade him that he should marry Lucetta quickly. But she is in love with Farfrae, and they run away one weekend to get married, not telling Henchard until after the fact. Henchard's credit collapses and he goes bankrupt. Farfrae buys Henchard's old business and tries to help Henchard by employing him as a journeyman.
Lucetta asks Henchard to return her old love letters, and Henchard asks Jopp to take them to her. Jopp, who still bears a grudge for having been cheated out of the position of factor, opens the letters and reads them out loud at an inn. Some of the townspeople publicly shame Henchard and Lucetta, creating effigies of them in a skimmington ride. Lucetta is so devastated by the spectacle that she collapses, has a miscarriage, and dies.
The next day, Newson - who it transpires was not lost at sea - arrives at Henchard's door asking about his daughter. Henchard, who has come to value her kindness to him, is afraid of losing her companionship and tells Newson she is dead. Newson leaves in sorrow. After 21 years, Henchard's vow of abstinence expires, and he starts drinking again.