Free indirect speech

Free indirect speech is a style of third-person narration which uses some of the characteristics of third-person along with the essence of first-person direct speech; it is also referred to as free indirect discourse, free indirect style, or, in French, discours indirect libre.
Free indirect speech can be described as a "technique of presenting a character's voice partly mediated by the voice of the author" (or, reversing the emphasis, "that the character speaks through the voice of the narrator") with the voices effectively merged. This effect is partially accomplished by eliding direct speech attributions, such as "he said" or "she said". 
The following is an example of sentences using direct, indirect and free indirect speech:
According to British philologist Roy Pascal, Goethe and Jane Austen were the first novelists to use this style consistently and 19th-century French novelist Flaubert was the first to be aware of it as a style.
Naming.
Randall Stevenson suggests that the term free indirect discourse "is perhaps best reserved for instances where words have actually been spoken aloud" and that cases "where a character's voice is probably the silent inward one of thought" should be described as free indirect style.
Comparison of styles.
What distinguishes free indirect speech from normal indirect speech is the lack of an introductory expression such as "he said" or "he thought". It is as if the subordinate clause carrying the content of the indirect speech were taken out of the main clause which contains it, becoming the main clause itself. Using free indirect speech may convey the character's words more directly than in normal indirect, as devices such as interjections and psycho-ostensive expressions like curses and swearwords can be used that cannot be normally used within a subordinate clause. Deictic pronouns and adverbials refer to the coordinates of the originator of the speech or thought, not of the narrator.
Free indirect discourse can also be described as a "technique of presenting a character's voice partly mediated by the voice of the author", or, in the words of the French narrative theorist Gérard Genette, "the narrator takes on the speech of the character, or, if one prefers, the character speaks through the voice of the narrator, and the two instances then are "merged"".
Use in literature.
Roy Pascal cites Goethe and Jane Austen as the first novelists to use this style consistently.
He says the nineteenth century French novelist Flaubert was the first to be aware of it as a style. This style would be widely imitated by later authors, called in French "discours indirect libre". It is also known as "estilo indirecto libre" in Spanish, and is often used by Latin American writer Horacio Quiroga.
In German literature, the style, known as "erlebte Rede" (experienced speech), is perhaps most famous in the works of Franz Kafka, blurring the subject's first-person experiences with a grammatically third-person narrative perspective.
In Danish literature, the style is attested since Leonora Christina (1621–1698) (and is, outside literature, even today common in colloquial Danish speech).
Some of the first sustained examples of free indirect discourse in Western literature occur in Latin literature, where the phenomenon often takes the name of oratio obliqua. It is characteristic, for instance, of the style of Julius Caesar, but it is also found in the historical work of Livy.
English, Irish and Scottish literature.
As stated above, Austen was one of its first practitioners. The American novelist Edith Wharton relies heavily on the technique in her 1905 novel "The House of Mirth". Irish author James Joyce also used free indirect speech in works such as "The Dead" (in "Dubliners"), "A Portrait of the Artist as a Young Man", and "Ulysses". 
Scottish author James Kelman uses the style extensively, most notably in his Booker Prize winning novel "How Late It Was, How Late", but also in many of his short stories and some of his novels, most of which are written in Glaswegian speech patterns. Virginia Woolf in her novels "To the Lighthouse" and "Mrs Dalloway" frequently relies on free indirect discourse to take us into the minds of her characters. Another modernist, D. H. Lawrence, also makes frequent use of a free indirect style in "transcribing unspoken or even incompletely verbalized thoughts". Lawrence most often uses free indirect speech, a literary technique that describes the interior thoughts of the characters using third-person singular pronouns ('he' and 'she') in both "The Rainbow" and "Women in Love". According to Charles Rzepka of Boston University, Elmore Leonard's mastery of free indirect discourse "is unsurpassed in our time, and among the surest of all time, even if we include Jane Austen, Gustave Flaubert, and Hemingway in the mix."
Some argue that free indirect discourse was also used by Chaucer in "The Canterbury Tales". When the narrator says in "The General Prologue" that he agrees with the Monk's opinion dismissing criticism of his very unmonastic way of life, he is apparently paraphrasing the monk himself:
These rhetorical questions may be regarded as the monk's own casual way of waving off criticism of his aristocratic lifestyle. Similar examples can be found in the narrator's portrait of the friar.
Latin literature.
Some of the first sustained examples of free indirect discourse in Western literature occur in Latin literature, where the phenomenon conventionally takes the name of oratio obliqua. It is characteristic, for instance, of the style of Julius Caesar, but it is also found in the historical work of Livy. One example from Caesar's De bello Gallico with the beginning of the German king Ariovistus' response to Caesar (1.36):
Following the rules of oratio obliqua, all verbs and pronouns shift to the third person, representing an individual's words (or sometimes unspoken thoughts) at length and articulately, beyond the confines of indirect speech narrowly intended, but nonetheless without a verbatim quotation. This allows the historian to report various characters' discourses in some detail without ever relinquishing his narratorial role, simultaneously avoiding the rhetorical effect that ancient historiography associated with extended direct speech.