In his essay "Love and Hatred of 'French Theory' in America," Rolando Perez provides this very incisive account of the reception of Theory in the 1980s:
Those of us who were either in the U.S. academy as professors or as graduate students in the early 1980s were weaned on the milk of post-existentialist, French thought. For reasons that had little or nothing to with the individual thinkers behind the different theories, two camps formed all on their own. Or perhaps more accurately, according to the academic interests of the people involved. Those whose interests were primarily literary were attracted to, studied, and wrote on Barthes, Derrida, Jabes, de Man, etc. Much of what we think of as being "French theory" today is the result of the kind of literary criticism that was carried out in prestigious universities like Yale during the 1980s. Academicians and graduate students who were interested in Continental political philosophy found in Foucault, Deleuze, Guattari, Lyotard, and Baudrillard, the necessary keys they needed to critique contemporary, American capitalist society. Some of us attempted to bring these two strains of French thought together, either from the literary or from the political end. And there were good reasons for such attempts, even if at times the actual results were less than satisfactory.
Certainly there were things to criticize in what came to be known as postmodern French theory. There were people who were churning out deconstructive readings of just about everything under the sun, and doing it quite badly: building careers, amassing publications for tenure, and saying nothing. And the same could be said of all the Deleuzean articles that made it to the pages of so many publications. Yet few would deny today the importance of contemporary French thought on American letters. Up until what some have called the "French invasion" of academia, American literary criticism was at a stand still, and Continental philosophy was merely what was left of the exhausted, no longer relevant post-war philosophy of phenomenology and existentialism. What French Theory in America and Hatred of Capitalism do is to show us in an eloquent manner what French thought has contributed, and continues to contribute, to academia and the art world.
Although I can certainly see how an endeavor like "Continental philosophy" might at a given time be "exhausted," in need of fresh insights and an altered focus, I find it harder to agree that "literary criticism was at a stand still." How could literary criticism--considered as a practice, not as a theory about practice--be at a "stand still"? Unless the term has come to mean only theory about practice, and the actual practice of explicating and evaluating texts is something else, something about which academe no longer concerns itself?
The latter kind of criticism doesn't need to be "advanced," its assumptions "updated." Explication is explication. The process of moving from consideration of textual features to an evaluation of the text's success in accomplishing its implicit purpose remains the same. Certainly insights garnered from a familiarity with theory or another critic's method might be brought to bear in a particular instance, but this will provide a new perspective on the individual work at hand, not on the practice of literary criticism per se. The new perspective has been produced by the application of an unchanging principle--read the text as intensively as one can, come to a conclusion based on an assessment of ends and means.
Developments over the past twenty-five years have produced a conception of "literary criticism" by which the object of criticism is no longer the literary work itself but the operations of criticism. The very notion of the "literary" is interrogated and competing notions of "value" are debated. These are perfectly acceptable things to do, but they have become the defining characteristics of literary criticism, not the appraisal of works of fiction and poetry per se, at least insofar as the very term "criticism" has become synonymous with "academic criticism"--which I would argue has certainly happened. The debate over Theory is often framed as a conflict between the "higher eclecticism" John Holbo writes about and a more respectful appreciation of literature itself, but it would be more precise to say that one distinctive practice--literary criticism--has been replaced by another--theoretical speculation, with literature as its prompt.
I am not arguing that such speculation should not be carried out. Even if I did believe that (I don't), no amount of complaining by the advocates of "literature itself" is going to return us to the days when Literature was the disciplinary main attraction, the "literary" scholar its curator. For whatever reason, studying literature for its own sake has proven to be an unsuitable activity in the contemporary university. I do wonder, however, why the term "literary criticism" continues to be used in describing what academic scholars are now doing in most literature departments. Surely it isn't necessary to retain it for purposes of prestige or legitimacy. Why not just acknowledge that both Theory and cultural studies are what they are--which is to say, they are not literary criticism. They are both more and less than literary criticism: more in that they take all of culture as their domain, less in that by widening the scope of "criticism" so broadly they don't really notice individual writers and works much at all. If nothing else, relinquishing the title to "literary criticism" might revitalize criticism as a general-interest practice and in so doing might bring some needed attention back to the novelists and poets who could use it.