Butts continues to employ psychological theories to understand the lives of others in her letters to Douglas Goldring. Her primary subject for analysis here is Goldring’s son, Hugh Goldring, who stays with Butts for extended periods of time. In one particular letter to Goldring, Butts provides a thorough review of Hugh’s character ("No date").

One component of early psychology that Butts incorporates into her analysis of Hugh is the importance of childhood experiences on an individual’s development. Jung, in particular, emphasizes childhood as a stage of life for “remaining dependent upon parents…and building up emotional resilience” (Williams 66; Jung, Collected Works para. 756). Adversities, including problems within the family unit, in childhood can have a negative impact on an individual's psychological growth (Jung, Collected Works para. 761-762). Butts encourages Goldring to consider Hugh’s life experiences before judging him harshly for his behaviour: “he was a rude infernal idle little nuisance, I don’t doubt it. But remember his age, the complex of circumstances that has helped make him” ("No date"). Butts’s correspondence with Goldring provides some clues as to the circumstances she is alluding to here. Specifically, Hugh is of “delicate health," an “orphan”—presumably a reference to him living with Butts rather than either of his parents—and has a strained relationship with his mother (Butts, "7 December"; Butts, "no date"). Jung also describes how the process of “individuation,” becoming oneself over time, can be difficult for youth if they suffer from a “disturbance of psychic equilibrium” (Jung, Collected Works para. 111, 430, 762); Butts appears to agree with this idea when she suggests that Hugh’s behaviour is a representation of “the dis-equilibrium his mother is finally responsible for” ("No date"). However, Butts also alludes to Jung’s suggestion that the transition to adult independence can be improved through adequate preparation to suggest that Hugh’s future is not doomed by his life thus far (Jung, Collected Works para. 761). For instance, she insists that “all the fine, decent, honest instincts” are present in Hugh and that Goldring “might reasonably hope for an exceedingly fine career from him” (Butts, "7 December").

Butts’s analysis of Hugh’s character and behaviour demonstrates that she seriously engages with psychology to understand people in her life. Moreover, this approach results in a multidimensional perspective of the individual in question; psychological theories provide a reasonable account for Hugh’s difficulties and negative traits without disparaging all hope for his future. Thus, Butts’s knowledge in this field makes her a particularly considerate caregiver for someone who is in need of “patience, loving criticism, & infinite affection” (Butts, "7 December") for their development.

“Armed with Madness” provides a compelling example of Butts applying her knowledge of psychology to her literary work. Although Butts explicitly references Freud several times, and parodies his theory of Free Association, her treatment of the character Clarence is a more nuanced demonstration of psychology weaving through Butts’s text.

Clarence exists on the periphery of the novel’s main cast of characters and only becomes central to the plot in the latter half of the text. In addition to being a Black, queer artist, the reader is informed that Clarence is a war veteran (Butts, “Armed with Madness” 21, 31) and bears physical evidence of this experience: his body is “branded with shrapnel and bullet and bayonet thrust” (115). In addition to being physically scarred, Clarence is psychologically scarred from the war as well. For example, he is described as feeling “horribly shy, raw, ill-adjusted, and sick to assure himself that the others thought he was good for something” (31). His inability to adjust to being a part of the group, post-war, can be interpreted as an allusion to his psychological distress. Butts also includes several scenes in which Clarence has disturbing dreams. Although they do not explicitly depict scenes of war, they appear to be related to this experience; they are violent, distressing, and contain symbols such as a “shrapnel helmet” (30-31).

To a modern reader, it is clear that Clarence suffers from Post-traumatic Stress Disorder (PTSD); however, at the time Butts was writing, this condition was only beginning to be understood. Freud played a critical role in investigating and theorizing PTSD. In his seminal text Beyond the Pleasure Principle, Freud outlines his understanding of “traumatic neurosis”: this is a condition exhibited by World War I veterans, among other groups and individuals, that includes symptoms such as “hysteria,” “general enfeeblement,” and “disturbance of mental capacities” (Freud, Beyond 10). Interestingly, Freud emphasizes how “traumatic neurosis” affects people’s dreams. Specifically, the “function of dreaming,” which is to express unconscious wishes, is interrupted and dreams instead depict the traumatic experience “constantly forcing itself upon the patient” (Freud, Beyond 11-12). This theory was published in 1920, eight years before “Armed with Madness” was published (Freud, Beyond).

Considering Butts’s interest in Freud’s theories, this historical context illuminates her depictions of Clarence. For example, like sufferers of "traumatic neurosis," Clarence is haunted by the trauma of war through his dreams: “Clarence, by himself, was simply and terribly afraid. Not of individuals, but of a menace that walked hand in hand with night” (Butts, “Armed with Madness” 115-116). This understanding of Clarence is reflected in Butts’s treatment of his violent episode at the novel’s climax. During this episode, Clarence is overcome with anger, leading him to kill a gull, destroy his sculpture of Picus, and torture Scylla until he is stopped by Carston (126-133). However, in the aftermath of this outburst, the text’s other characters treat Clarence with care and compassion. Scylla embraces him, distracts him from his distressing memories, and they all agree to take him to the nearby village so he can recuperate (138-140). There is a consensus among Clarence’s friends that he is not to be blamed for what he did. Significantly, Picus characterizes the event as a dream: “I think you know, that you actually did a dream” (137). This reference to dreaming, along with the descriptions of Clarence’s psychological distress, strengthens the notion that Clarence suffers from PTSD; since his episode was a dream, and Freud argues that dreams do not function as they should when an individual has “traumatic neurosis,” Clarence is absolved of any blame for his actions.