According to the authors of this paper, it is from a story called "Inside and Outside" from a collection of stories called Stories of Five Decades
"...the distinction between inside and outside is habitual in our thinking, but not necessary to it. Our minds are capable of passing beyond the dividing line we have drawn for them. Beyond the pairs of opposites of which the world consists, other, new insights begin.
~ Hesse, H.(1974) Stories of Five Decades
, London: Jonathan Cape.
Hesse lived 1877-1962.
It appears that Stories of Five Decades actually has a 1972 printing associated with it.
http://www.fantasticfiction.co.uk/books ... horid=1355
Or, then again, it could be 1973
Oops! It looks like it has a 1948 date of origin.
Here's a breakdown of the book
The island dream.--Incipit vita nova.--To Frau Gertrud.--November night.--The marble works--The Latin scholar.--The wolf.--Walter Kömpff.--The field devil.--Chagrin d'amour.--A man by the name of Ziegler.--The homecoming.--The city.--Robert Aghion.--The cyclone.--From the childhood of Saint Francis of Assisi.--Inside and outside
--Tragic.--Dream journeys.--Harry, the Steppenwolf.--An evening with Dr. Faust.--Edmund.--The interrupted class.