The setting of the novel in New york city during prohibition provides a conflict that underlies the whole story. What is the conflict?
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The setting in The Great Gatsby is present throughout the novel, of course, but it isn't the foundation of the work or the central conflict. Daisy doesn't reject Gatsby in the end because he's a bootlegger, she rejects him because he "asks too much"--because she will not announce that she never loved Tom--and because she never loved Gatsby in the total, all-encompassing way he thought she did. She never loved him like he loves her.
Gatsby is trying to recapture a relationship that never was, a relationship that was an illusion. That is the central conflict in the novel.
Gatsby's business is just the means he used to become wealthy enough to compete with Tom, and to get Daisy to notice him and take him seriously. His business is one part of a means to an end, but the end is recapturing the relationship with Daisy.
Furthermore, Gatsby's business is used by Tom in an attempt to discredit Gatsby, but with little success. Gatsby's business conflicts with the idealistic American myth or American dream, but it is not an essential part of why Daisy rejects him.
During Prohibition, the manufacture, transportation, and sale of alcohol was made illegal in the United States. But people continued to want to drink alcohol and buying it and drinking it weren't illegal. So people called "bootleggers" started smuggling alcohol and making a lot of money doing it. Gatsby was one of these smugglers.
So Gatsby got rich and he thought that that would make Daisy love him. The problem was that she did not approve of him making his money illegally. So this is the conflict, so we don't see it until late in the novel.
The conflict is the underlying assumption characters have of Gatsby that remains unknown for so long during the novel. People know he has money, and we never know how he gets it. We know he lies because when asked about his background he confuses the Midwest with San Francisco.
Gatsby also provides a place for parties. This was going on quite a bit during Prohibition in that there would be places people could go where they knew it would be provided, cause you certainly couldn't buy alcohol at the store.
Tom, by chapters 7-8, makes an assertion that Gatsby must be a bootlegger with all the money he has.
Gatsby's quest throughout the novel is to become whole. He thinks getting Daisy (no matter how legal or illegal that was) would make him whole. Unfortunately, it didn't work for him.
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