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Waelder first reviews and discusses the various psychoanalytic attempts to explain the formation of delusions: withdrawal and inversion of libido, projection, abandonment of reality, attempted restitution, and return of a previously denied memory in distorted form. On the basis of these mutually supplementary hypotheses and observations, Waelder proposes the theory that a delusion arises as follows: 1, something is denied (either an event or a wish); 2, the denial is supported by a fantasy (countercathexis); 3, the denied event or wish returns with some distortion. The last step constitutes the delusion, which is always in the form of a claim, because it is isomorphic with the defense (denial) and is inaccessible to influence because of the unconscious knowledge of its essential truth.
The author explains the difference between normal and psychotic projection on this basis: projection (denial plus fantasy) is still normal until there is a return of the denied, despite the defensive efforts of the ego. Also according to Waelder, denial represents a third possibility of the solution of the conflict between drive and reality. The first two are autoplasticism and alloplasticism. The result of denial (still within normal limits) is that the individual employing it becomes a dreamer. The pathological outcomes corresponding to these three normal types of adjustment are neurosis (corresponding to autoplasticism), psychopathy (corresponding to alloplasticism), and delusional psychosis (corresponding to being a dreamer, artist, etc.).