What is the concept of decay in American Gothic literature and how is it related to social or psychological factors?

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Goth literature surfaced as part of the Romantic movement, and was quite popular in the 19th century. It was a time where nostalgia was a common sentiment not only in literature, but throughout society. The complexity of trying to maintain the pulcritude and righteousness that was almost imposed by the Victorian lifestyle was consistently challenged by new scientific discoveries that tested the Victorian concepts of life, death, health, grace, divinity, and righteousness itself.These were indeed quite psychologically charged times, much like the 21st century, with a world going from one way of life to the real of industry and new discoveries.

In American Goth, for example, Edgar Allan Poe is the most known producer of work that denotes those very elements of Romanticism. So, to answer specifically your question, yes. The meme of "decay" was a current terminology at the time involving the decay of man, the decay of religion under science, the decay of society under the growing middle classes, and the psychological comforts of nostalgia and darkness as a response to the life changes in front of us of which we have no control. In other words, if we are not willing to face the darkess, change, and life, we too can decay just like the House of Usher did.

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The first thing that came to my mind when I read your question was Edgar Allan Poe's Gothic tale "The Fall of the House of Usher," which is full of all sorts of decay.

There's literal (biological) decay in the swamp-like setting around the house. I remember the opening of the story having clear, extensive descriptions of stagnant water and fungus, among other things. There's literal structural decay in the foundation of the house itself; the house has a large crack that runs down its front (seen from the opening of the story). Finally, there's metaphoric decay in the declining mental state of the brother and sister who live n the house.

To answer your question more directly: Yes, in Gothic stories "decay" is often used in one or more ways to signify failing social structures (in Poe's tale of incest, the failing social structure is the nuclear family) and psychological decline (brother and sister are clearly insane).

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