When Lacan uses the term "madness," or refers to someone as being "mad," he is referring to psychosis:
"The psychoses ... correspond to what has always been callled and legitimately continues to be called madness."
Lacan adds that "there is no reason to deny oneself the luxury of the word."
Thus far from seeing it as a derogatory term, Lacan values it for its poetic resonances, and approves of its use, on condition that it is used in the precise sense of psychosis.
So, for example, in 1946 Lacan congratulates the French psychiatrist Henry Ey for "obstinately preserving the term."