The novel suggests that before achieving the highest level of spiritual insight, Haller must first address his psychological issues. He needs to learn to fully embrace his own existence. At the story's outset, despite his intellectual prowess and sophistication, Haller is psychologically unstable. He doesn't fit in and clashes with the society around him, remaining inflexible in his habits. He is tormented by the conflict between his perceived dual nature: the "wolf" aspect—his yearning for independence, strength, and nonconformity—constantly battles the human side, which could be more sociable and pleasant but is also cowardly and ignorant. This emotionally crippled individual, filled with self-loathing, nearly attempts suicide because his life has turned into a "waste and empty hell of lovelessness and despair." He fails to live truthfully according to his inner self, trapping himself by limiting his own identity. Haller believes his dual nature is permanent and unchangeable, unaware that he is suppressing countless other facets of himself, each with a rightful claim to his identity. The author of the "Treatise on the Steppenwolf" writes, "Harry consists of a hundred or a thousand selves," challenging the notion of a consistent, unified personality as an illusion. The treatise compares Haller to a gardener tending to a garden of a thousand flowers but sorting them into only two groups: edible and inedible. This oversimplification causes him to overlook most of the garden's beauty and worth. The treatise states, "This is what the Steppenwolf does with the thousand flowers of his soul. What does not stand classified as either man or wolf he does not see at all."

Haller, due to his tendency to suppress much of his true self, finds himself at odds with the natural progression toward completeness and integration, as suggested by psychologist Carl Jung. Essentially, Haller's severe intellectual isolation has led him to suppress his desires for love, companionship, and social enjoyment. He needs to become less rigid, critical, and elitist to truly appreciate all aspects of life, both internally and externally. To aid in this transformation, Haller's new acquaintances—Hermine, Maria, and Pablo—play a crucial role by introducing him to new experiences. Pablo, in particular, invites him to enter the magic theater, which is "for madmen only." This implies that it is for those willing to release the strong hold of rational thought to explore their subconscious desires and motivations. Through this journey, Haller reconnects with his sensual self by revisiting past relationships with women, achieving more fulfilling outcomes: "All the love that I had missed in my life bloomed magically in my garden during this hour of dreams." He discovers that a person’s character is not static but is made up of countless elements that can be rearranged and combined in various ways, much like pieces on a chessboard. This realization liberates him from the limiting man/wolf duality that once confined his consciousness, preparing him to seek the divine even amidst the chaos of the human world.