The concepts of the inner and outer self taught by the new church are completely different [from what is taught by other churches]. In this view, our inner self is our will. It is the source of the thoughts we have when we are left to ourselves, such as when we are at home. Our outer self is what we do and say in company or in public. Our inner self, then, is goodwill and faith—goodwill that belongs to our will, and faith that occupies our thoughts.
Before we undergo regeneration, goodwill and faith constitute our earthly self, which is divided into an inner and an outer level. This is clear from the fact that we are not allowed to act in company or in public the way we do when left to ourselves at home. What causes the split into an inner and outer level is that civil law prescribes punishments for those who do evil things and rewards for those who do good things. Since no one wants to be punished and everyone wants to be rewarded, we therefore force ourselves to create an outer self that is separate from our inner self. The reward takes the form of wealth or a good reputation; we achieve neither one unless we live according to the law. This is why morality and benevolence are practiced outwardly, even by people who have no morality or benevolence inwardly. This is the origin of all hypocrisy, flattery, and pretense.
As for the earthly self being split into two levels, this is an actual division of both will and thought. Every action that we take originates in our will; every word we say originates in our thought. Below our first earthly will, we ourselves create a second will and a second thought process, which also belong to our earthly self. The will that we create ourselves could be called our bodily will, because it drives the body to behave in moral ways. The thought process that we create ourselves could be called lung-related thought, because it drives our lips and tongue to say things that show a good understanding.
Taken together, this type of thought and this will can be compared to the inner bark that adheres to the outer bark of a tree; or it can be compared to the membrane that adheres to the shell of an egg. Behind this self-made thought and will lies the inner earthly self. If we are evil, our inner earthly self is like rotten heartwood within a tree whose outer and inner bark appears whole; or like a rotten egg inside a clean white shell.
from Regeneration, Pages 63, 64