We give a simple proof of the following result.
Let be a finitely complete cartesian closed category. Then the category of internal categories in is also finitely complete and cartesian closed.
First suppose is finitely complete. Then the category of directed graphs is also finitely complete, and since is monadic over , it follows that is also finitely complete.
Now suppose that is finitely complete and cartesian closed. Let denote the category of nonempty ordinals up to and including the ordinal with 4 elements. We have a full and faithful embedding
where the codomain category is cartesian closed. Indeed, the exponential of two objects , in may be computed as an -enriched end
when evaluated at , as is easily checked (see for instance here); note that this end is a finite limit diagram since is finite.
If , are internal categories in , seen as functors , the exponential defines the exponential in . To see this, it suffices to check that , as defined by the end formula above, is a category , i.e., is in the essential image of the nerve functor. For in that case, we have natural isomorphisms
whence satisfies the universal property required of an exponential.
Objects in the essential image of the nerve are characterized as functors which take intervalic joins in to pullbacks in , as given precisely by the Segal conditions. The remainder of the proof is then finished by the following lemma.
If satisfies the Segal conditions and is any functor, then also satisfies the Segal conditions.
For any we have the formula
Since the enriched end and the internal hom-functor both preserve pullbacks, we are reduced to checking that
as a functor in the argument (for each fixed ).
Note that the displayed statement is a proposition in the language of finitely complete categories (i.e., in finitary essentially algebraic logic). Since hom-functors jointly preserve and reflect the validity of such propositions, it suffices to prove it for the case where . But this is classical elementary category theory; it says precisely that if is a small (ordinary) category, then the usual functor categories , are equivalently described by exponentials of (truncated) simplicial sets. This completes the proof.