Adding further explanation as this sentence always trips me up and thought it may help others:

TLDR
Sentence interpretation:
Franklin made a distinction that people can appear one way on the surface (appearance), but have hidden motivations (reality). Some politicians may exploit this idea. For example, politicians could present a trustworthy image towards the people, but actually be conducting illegal, self-motivated acts behind the scenes. Because these politicians appear as trustworthy on the surface, it's difficult to understand their underlying intentions. However, George is not troubled by the idea of politicians using this idea to their advantage to become con-men.

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Breakdown

Key Phrase 1: "Confidence men"
This is a weird and confusing phrase, but it's an old term to describe a con-man (i.e someone who is deceitful and uses tricks to gain an advantage).

Blank (i): Wily = skilled at gaining an advantage, especially deceitfully.

Key phrase 2: "Adopting Franklin's distinction between appearance and reality"
Interpretation A) Something in reality is not always what it appears to be (A pretty looking flower could actually be deadly)
Interpretation B) Someone in reality is not always what they appear to be (A person who appears honest could actually be deceitful in reality).

If you adopt something, such as an approach, you're using it. We adopt clever math techniques to cut down time in the quant section.

Because key phrase 1 mentions con-men, the sentence is referring to Interpretation B, suggesting that con-men might use the idea to their advantage by utilizing an appearance to make it more difficult for others to interpret/understand their true deceitful intentions.

Blank (ii): Inscrutable - not readily investigated, interpreted, or understood.

Key phrase 3: "...did not seem to ____ George"
`...did not...` indicates a contrast. So a good initial guess would be "did not seem to [bother/worry/concern] George"

Blank (iii): Discommode - Cause (someone) trouble or inconvenience.