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Etymology of the modern usage
The use of the term gay, as it relates to homosexuality, is documented as early as the 1920s. A quote from Gertrude Stein's Miss Furr & Mrs. Skeene (1922) is possibly the first traceable use of the word, though it is not altogether clear whether she uses the word to mean lesbianism or happiness:
They were ...gay, they learned little things that are things in being gay, ... they were quite regularly gay.
The 1929 musical Bitter Sweet by Noel Coward has the first uncontested use of the word: in the song "Green Carnation", four overdressed, 1890s dandies sing:
Pretty boys, witty boys, You may sneer At our disintegration. Haughty boys, naughty boys, Dear, dear, dear! Swooning with affectation... And as we are the reason For the "Nineties" being gay, We all wear a green carnation.
Coward uses the "gay nineties" as a double entendre. The song title alludes to the gay playwright Oscar Wilde, who famously wore a green carnation himself.
Bringing Up Baby (1938) was the first film to use the word "gay" in reference to homosexuality.
Gay was originally used purely as an adjective ("he is a gay man" or "he is gay"). Gay can be also used as a plural collective-like noun: "Gays are opposed to that policy", but this use is rare and deprecated. It is rarely as a singular noun "he is a gay" and sounds unusual in this context, hence its use by the Little Britain comedy character Daffyd Thomas (a gay man who believes himself "the only gay in the village" despite abundant evidence to the contrary).
In the 1960s, gay became the term predominantly preferred by homosexual men to describe themselves. Gay was the preferred term since homosexual was the name used by the Diagnostic and Statistical Manual of Mental Disorders (DSM) to denote men affected by the "mental illness" of same-sex attraction. The illness of homosexuality was removed from the DSM in 1973, but the clinical connotation of the word was already embedded in society.
By 1963, the word was known well enough by the straight community to be used by Albert Ellis in his book The Intelligent Woman's Guide to Man-Hunting.
Folk etymologies
It has been claimed that "gay" was derived as an acronym for "Good As You", but this is a backronym (based on a fake etymology).
Another folk etymology accrues to Gay Street, a small street in the West Village of New York City — a nexus of homosexual culture. The term also seems, from documentary evidence, to have existed in New York as a code word in the 1940s, where the question, "Are you gay?" would denote more than it might have seemed to outsiders.
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