Sigmund Freud was born in 1856, before the advent of telephones, radios, automobiles, airplanes, and a host of other material and cultural changes that had taken place by the time of his death in 1939. Freud saw the entirety of the first World War–a war that destroyed the empire whose capital city was his home for more than seventy years–and the beginning of the next. He began his career as an ambitious but isolated neurologist; by the end of it, he described himself, not inaccurately, as someone who had had as great an impact on humanity's conception of itself as had Copernicus and Darwin.
Freud's most obvious impact was to change the way society thought about and dealt with mental illness. Before psychoanalysis, which Freud invented, mental illness was almost universally considered 'organic'; that is, it was thought to come from some kind of deterioration or disease of the brain. Research on treating mental illness was primarily concerned–at least theoretically–with discovering exactly which kinds of changes in the brain led to insanity. Many diseases did not manifest obvious signs of physical difference between healthy and diseased brains, but it was assumed that this was simply because the techniques for finding the differences were not yet sufficient.
The conviction that physical diseases of the brain caused mental illness meant that psychological causes–the kinds that Freud would insist on studying–were ignored. It also meant that people drew a sharp dividing line between the "insane" and the "sane." Insane people were those with physical diseases of the brain. Sane people were those without diseased brains.
Freud changed all of this. Despite his background in physicalism (learned during his stay in Ernst Brücke's laboratory), his theories explicitly rejected the purely organic explanations of his predecessors. One of Freud's biggest influences during his early days as a neurologist was Jean-Martin Charcot, the famous French psychiatrist. Charcot claimed that hysteria had primarily organic causes, and that it had a regular, comprehensible pattern of symptoms. Freud agreed with Charcot on the latter point, but he disagreed entirely on the former. In essence, Freud claimed that neurotic people had working hardware, but faulty software. Earlier psychiatrists like Charcot, in contrast, had claimed that the problems were entirely in the hardware. As psychoanalysis became increasingly popular, psychology and psychiatry turned away from the search for organic causes and toward the search for inner psychic conflicts and early childhood traumas. As a consequence, the line between sane and insane was blurred: everyone, according to Freud, had an Oedipal crisis, and everyone could potentially become mentally ill.
Psychoanalysis has had an enormous impact on the practice of psychiatry, particularly within the United States, but today it is regarded by most sources–medical, academic, governmental, and others–as almost entirely incorrect in its conception of the mind. This judgment is based on the crucial test of psychoanalysis: whether or not it really helps patients with behavioral or psychological problems. The consensus is that is does not. Psychoanalysis in its many varieties appears to have little or no efficacy in treating mental illness. In contrast, psychopharmacology and cognitive- behavioral therapies (therapies that simply try to change what the patient thinks and does rather than analyzing the causes of the behavior), while far from perfect, do appear to help.
If this is true–and we have a great deal of evidence that it is–why is Freud still so important? Why do we generally speak of him as a great figure in Western thought, instead of as a strange and misguided figure of turn-of-the- century Europe?
There are at least two reasons. The first is purely practical: psychoanalysis has enormous historical significance. Mental illness affects an large proportion of the population, either directly or indirectly, so any curative scheme as widely accepted as was Freud's is important to our history in general. The second, more important, reason is that Freud gave people a new way of thinking about why they acted the way they did. He created a whole new way of interpreting behaviors: one could now claim that a person had motives, desires, and beliefs–all buried in the unconscious–which they knew nothing about but which nonetheless directly controlled and motivated their conscious thought and behavior. This hypothesis, derived from but independent of Freud's psychiatric work, was the truly radical part of his system of thought.
I wrote an analysis of Freud's Civilization and Its Discontents with page references here:
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I wrote an analysis of Beyond the Pleasure Principle here:
And I wrote an analysis of Future of an Illusion (not mentioned in the summary), a piece about Freud's understanding of God, published in 1927, here:
...I think you might need to update your review of the research consensus! Although it has developed a lot from Freud's original ideas, psychoanalytic theory - and practice - are still in use, and proving useful. It's been a while since the ideas you're describing here (either about psychodynamic or cognitive therapy) were part of the common psychological discourse about treatment or research methodology...