Film theory, too, despite the structural link between psychoanalysis and cinema, did not immediately develop in the direction of psychoanalysis. The first attempt to understand the cinema in psychological terms occurred in 1916, when Hugo Münsterberg (1863–1916) wrote The Photoplay: A Psychological Study , a book that stressed the parallel between the structure of the human mind and the filmic experience. However, Münsterberg's concern is only the conscious mind, not the unconscious; he is thus a psychologist, not a psychoanalyst, more neo-Kantian than Freudian. From 1916 onward, this focus on the conscious experience of the spectator predominated in film theory, as attested by the work of important film theorists such as André Bazin and Sergei Eisenstein. Though Bazin and Eisenstein agree on little, they do share a belief that film's importance lies in its conscious impact. Neither considers the unconscious. Film theory took many years to begin to think of the cinematic experience in terms of the unconscious, but when it commenced, psychoanalytic film theory came in the form of a tidal wave in the 1970s and 1980s.

The primary focus of this wave of psychoanalytic film theory was the process of spectator identification understood through French psychoanalyst Jacques Lacan's idea of the mirror stage. Even more than Freud himself, Lacan, despite the difficulty of his work and its lack of availability in English translation, was the central reference point for the emergence of psychoanalytic film theory. In truth, psychoanalytic film theory has from its incipience been almost exclusively Lacanian film theory. According to Lacan, the mirror stage occurs in infants between six and eighteen months of age, when they misrecognize themselves while looking in the mirror. The infant's look in the mirror is a misrecognition because the infant sees its fragmentary body as a whole and identifies itself with this illusory unity. In the process, the infant assumes a mastery over the body that it does not have, and this self-deception forms the basis for the development of the infant's ego. By detailing the formation of the ego through an imaginary process, Lacan thereby undermines the substantial status that the ego has in some versions of psychoanalysis (especially American ego psychology, often the target of Lacan's most vituperative attacks). The attractiveness of this idea for film theory is readily apparent if we can accept the analogy between Lacan's infant and the cinematic spectator.

Psychoanalytic film theorists such as Christian Metz and Jean-Louis Baudry took this analogy as their point of departure. For them, the film screen serves as a mirror through which the spectator can identify himself or herself as a coherent and omnipotent ego. The sense of power that spectatorship provides derives from the spectator's primary identification with the camera itself. Though the spectator is in actual fact a passive (and even impotent) viewer of the action on the screen, identification with the camera provides the spectator with an illusion of unmitigated power over the screen images. Within the filmic discourse, the camera knows no limit: it goes everywhere, sees everyone, exposes everything. The technological nature of the filmic medium (unlike, say, the novel) prevents a film from capturing absence. The camera inaugurates a regime of visibility from which nothing escapes, and this complete visibility allows spectators to believe themselves to be all-seeing (and thus all-powerful). What secures the illusory omnipotence of the spectator is precisely the spectator's own avoidance of being seen. Like God, the spectator sees all but remains constitutively unseen in the darkened auditorium.

The above scenario functions, however, only insofar as it remains unconscious and the spectator sustains the sense of being unseen. This is why, according to this version of psychoanalytic film theory, classical Hollywood narratives work to hide the camera's activity. Once the camera itself becomes an obvious presence rather than an invisible structuring absence, the spectator loses the position of omnipotence along with the camera and becomes part of the cinematic event. When this happens, the spectator becomes aware that the film is a product and not simply a reality. To forestall this recognition, classical Hollywood editing works to create a reality effect, a sense that the events on the screen are really happening and not just the result of a filmic act of production. In this regard, classical Hollywood cinema functions like commodity fetishism, working to hide the labor that goes into the production of its commodity. When thinking about early psychoanalytic film theory, a reference to commodity fetishism is almost unavoidable, which suggests the strong link that has existed between psychoanalytic film theory and Marxist theory.

One cannot separate the early manifestation of psychoanalytic film theory from its political dimension. In addition to relying on Lacan's notion of the mirror stage, Baudry and other psychoanalytic film theorists take their bearings from Marxist philosopher Louis Althusser. For them, Althusser's notion of ideological interpellation (developed in his essay "Ideology and Ideological State Apparatuses," 1970) provides a way of thinking about the political implications of the mirror stage. For Althusser, ideology hails concrete individuals as subjects, causing them to regard themselves—mistakenly—as the creative agents behind their experiences. The illusion of agency is thus the fundamental ideological deception.

According to psychoanalytic film theorists, the cinematic experience perpetuates this ideological deception through the mirror relationship it sets up for the spectator. Insofar as traditional narrative film blinds the spectator to the way that film addresses or hails the spectator as a subject, every traditional narrative participates in the process of ideological interpellation and control. Hollywood film invites spectators to accept an illusory idea of their own power, and in doing so, it hides from spectators their actual passivity. For early psychoanalytic film theory, cinema's ideological victory consists of convincing spectators to enjoy the very process that subjugates them. This line of thought finds its fullest development in the British journal Screen throughout the 1970s.

It is also in Screen that theorists first began to link psychoanalytic film theory to feminist concerns. One of the most fecund developments in psychoanalytic film theory occurred through this alliance. In 1975 Laura Mulvey wrote "Visual Pleasure and Narrative Cinema," perhaps the most anthologized and most quoted essay in the entire history of film theory. The importance of this essay for the subsequent development of film theory cannot be overstated. Basing her essay on the pioneering work of Metz and Baudry, Mulvey links the process of spectator identification to sexual difference. According to Mulvey, a secondary identification with character accompanies the spectator's primary identification with the camera, and this identification with a filmic character is most often, at least in Hollywood cinema, an identification with a male character.

The spectator's sense of power is, for Mulvey, a definitively masculine sense of power. The spectator, then, is gendered male. On the screen, the male character, the site of identification, drives the movement of the film's narrative and is the character whose movement the camera follows. The female character serves as a spectacle for both the spectator and the latter's screen proxy, the male character, to look at. This process, which Mulvey termed the "gaze," deprives the female subject of her subjectivity, reducing her to a "to-be-looked-at-ness" that provides pleasure for the male spectator. Mulvey's appropriation of psychoanalysis for feminism is meant to destroy this pleasurable experience through the act of analyzing it. Here again, psychoanalytic theory is inseparable from the specific political program it serves.

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