The first five chapters form a preface for the rest of the novel and also serve as a general introduction for the reader. The author makes the purpose and main theme of the novel clear by criticizing the writers of the "beauty-and-talented-scholar" school of writing, as well as the writers of the "breeze-and-moonlight" school of writing, who, he says, corrupt young people with pornography and filth. In contrast to these types of novels, Tsao Hsueh-chin offers his literary principle of writing according to facts that are true and reflect reality. This emphasis on realistic writing is of profound significance because during the era of the Ching Dynasty (1644-1911), anti-realism was predominately the fashion.
For the most part, Chapter 1 focuses on Chen Shih-yin's decline and Chia Yu-tsun's currying favor with persons in authority for personal gain. The author describes, in outline, the social contours of the declining feudal society by comparing these two characters.
Chen Shih-yin, a well-to-do scholar, lives happily with his wife, Lady Feng (Feng-shih), and their three-year-old daughter Ying-lien (Lotus) beside the Temple of the Gourd in the city of Kusu (today: Soochow). In a dream, Shihyin meets two immortals (a monk and a Taoist), who show him a beautiful piece of jade, the Precious Jade of Spiritual Understanding. The dream ends, but later, the monk and the Taoist reappear and predict a sad fate for Shihyin's daughter, Lotus.
Later, Shih-yin meets his poor scholar-neighbor, Chia Yu-tsun, in the Temple of the Gourd. Yu-tsun works as a scrivener — that is, he sells scrolls and inscriptions to make a living. While talking with Shih-yin, Yu-tsun is greatly attracted to one of Shih-yin's maids, Chiao-hsin (Apricot); she seems to return his admiring glances.
During the Mid-Autumn Festival, Shih-yin and Yu-tsun spend the evening drinking wine and discussing poetry, and afterward, with Shih-yin's financial help, Yu-tsun leaves for the capital to seek fame and fortune. Shortly thereafter, a series of misfortunes befall Shih-yin: Lotus suddenly disappears during the Festival of Lanterns; Shih-yin falls ill; his house is burned to ashes when fire destroys the Temple of the Gourd; he is forced to make a meager living on his father-in-law's farm, and his father-in-law retains and mismanages the little money which Shih-yin has. Finally, penniless, aging rapidly, and in bad health, Shih-yin leaves with a lame and eccentric Taoist, setting out for faraway places.
