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The Great Gatsbyis the title of the novel and it is the broad description of Gatsby. Great means considerable to some degree so it can have good and bad connotations. Gatsby was great in terms of his idealism, romanticism, determination, corruption, and obsession.
His failure is external and internal. Gatsby was born Gatz to poor farmers. Gatsby is taken with the idea of Dan Cody, a wealthy man living the good life and the model for whom he would become. He meets Daisy and is impressed with her beauty and popularity. Daisy, like Cody, is associated with money and high social standing. Gatsby was born into a poor family (external cause) and became determined to reach those higher levels of society because in the end, that social strata is where he would find Daisy. Gatsby felt that he needed to become wealthy in order to get to the same place as Daisy. The family he was born into and the social struggles he faced in getting to Daisy (which included his time in the army, accumulation of wealth, and illegal business dealings) are all external factors.
But, those are external factors for James Gatz. When Gatz becomes Gatsby, he changes himself (or his self) and this is a voluntary internal change. In Chapter 6, Nick describes the beginnings of Gatz's internal transformation:
It was James Gatz who had been loafing along the beach that afternoon in a torn green jersey and a pair of canvas pants, but it was already Jay Gatsby who borrowed a rowboat, pulled out to the TUOLOMEE, and informed Cody that a wind might catch him and break him up in half an hour.
I suppose he’d had the name ready for a long time, even then. His parents were shiftless and unsuccessful farm people—his imagination had never really accepted them as his parents at all. The truth was that Jay Gatsby of West Egg, Long Island, sprang from his Platonic conception of himself.
Gatz became Gatsby as a way of escaping those external causes: being poor and later, out of Daisy's league. But that self-transformation (self-imposed internal cause) became the guiding cause and force that kept Gatz going as Gatsby. His failure is that he would stop at nothing to achieve his American Dream: Daisy and the material world that went along with it. Gatsby's failure is tragic because it was done in the spirit of love and idealism. Although Gatsby is a determined and successful romantic idealist, that success and obsession leads to a "ends justifies the means" mentality. Consequently, he engages in bootlegging and other illegal schemes to climb the social ladder in hopes of winning back a woman who's already married.
Had the ruthless but romantic Gatsby remained the humble idealist Gatz, his life obviously would have been different and probably less destructive. He was born into external conflicts but his self-imposed internal conflict is what predominantly causes the destruction.
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