I have written previously on Freud's "The Relation of the Poet to Day-Dreaming" somewhat positively here, but now I want to think about the relation between his view on art and that of Nietzsche. My basic thesis is that Nietzsche would consider this text to exemplify the Apollonian perspective, and does not sufficiently take into account the Dionysian element in art. This should seem to be pretty obvious to any reader of both this essay and The Birth of Tragedy, and so I will leave many details out of my account. A central difference between Nietzsche and Freud is that, whereas Nietzsche sees dreams and day-dreams primarily in terms of clear images, Freud believes that dreams express repressed desires. So Freud notes a fact that Nietzsche does not note, or refuses to: the unclear and often confusing nature of dreams, and then gives an explanation of this, i.e. in terms of repressed desires. However, when it comes to art, Freud can only find one type of art to fit his assumptions. The type he chooses is notably not ancient Greek tragedy or Wagnerian opera, or any fine art, for that matter, but popular novels. He chooses "less pretentious writers of romances, novels and stories" read by the largest groups. In each, the hero is the center of interest, and the writer tries to get our sympathy for the hero. Note however, that the hero is never seriously in danger in these stories, is never a tragic hero in Nietzsche's (or Aristotle's!) sense. He always gets his girl, and all of his escapes are hairbreadth. The stories are consoling. As Freud puts it, the Ego is the hero of all day-dreams and "all novels." But, I argue, this is certainly not true for all novels, some of which have tragic dimensions equal to that of the greatest tragic plays. The popular literature Freud describes simply does not deal with the deepest issues of human existence, unlike great novels. It does not, for instance, address human suffering in any significant way. Also it does not raise issues of redemption and self-transcendence which are fundamental to Nietzsche's notion of the Dionysian. The "feeling of security with which I follow the hero through his dangerous adventures" is precisely the same feeling that Nietzsche describes as trust in the principium individuationis, the principle that each thing is what it is and not something else, and the "Principle of Sufficient Reason," which, according to Schopenhauer, is the principle that everything has an adequate rational explanation. For Nietzsche, the ego trusting in these principles in a stormy sea is at risk of facing a violation of such principles, a violation that would terrify him, and that he can only resolve by penetrating the veil of Maya and becoming one with the primordial one. As the veil of Maya is ripped to shreds, the world is no longer divided into two realms.
From a Nietzschean perspective, Freud is fairly accurate in his description of the Apollonian art he chooses to portray as the essence of all art. For example, he says that in the world of the pulp novel "the story is sharply divided into good and bad, with complete disregard of the manifold variety in the traits of real human beings; the 'good' ones are those who help the ego in its character of hero..." This is certainly true of kitsch art in general, and is certainly not true, as Nietzsche well saw, of tragic art or of any art that is serious. Freud's blatant disregard for tragic art, or even of the art of genius as described by Kant, is evident when he surmises that "even the most extreme variations [of the novel] could be brought into relationship with this model by an uninterrupted series of transitions." It is ironic that the author of the "Oedipus complex" leaves no room in his most famous article on art for Oedipus himself, or for Hamlet for that matter, even though he also wrote about Hamlet elsewhere.
For Freud, then, poetry and novels, as well as day-dreaming, are a matter of wish-fulfillment, an nothing more. His famous formula is: "some actual experience which made a strong impression on the write had stirred up a memory of an earlier experience, generally belonging to childhood, which then arouses a wish that finds a fulfillment in the work in question..."
It is only after making this central individual-life-history-related analysis that he raises the issues of the poet who refashions "ready-made material" material which is "derived from the racial treasure-house of myths, legends and fairy-tales." This is the region from which the ancient Greek tragedies drew much of their material. Freud sees these myths etc. as "creations of racial psychology" and thinks it probable that they are "distorted vestiges of the wish-phantasies of whole nations - the age-long dreams of young humanity."
But it is more plausible to see these as manifestations of the Dionysian impulse in which, behind the mask of the myth, as Nietzsche argues, there is the god Dionysus himself, or whatever quite similar god or religious figure is found in non-Greek cultures, e.g. Bacchus, Jesus, etc. Such stories only seem distorted if you think, as Freud did, that the reality behind them is the day-dream of achieving sexual conquest or realizing some ambition....i.e. what he finds behind the popular or pulp (kitsch) literature of his time. Freud however had resources, for example in his analysis of neurosis and in his understanding of the thanatos drive, to provide something closer to a Nietzschean analysis of art properly speaking. He just did not utilize them in this rather trivial and dishearteningly simplistic essay.