Outer Wheel Seal

I bought a deuce recently with a bad gear oil leak at the left rear wheels. I assumed it was just a wheel seal with oil bath bearings like a modern truck. After doing some research here, I discovered it’s totally different.

So anyway I tore it down today to figure out what’s going on but I can’t figure out exactly how this works. What does the outer seal seal against? Should the outer diameter ride against the hub? Mine has about 1/8” all the way around between them.

And is it common to have a huge leak due to a bad seal? I keep reading about the “cork” thing and mine was in there.

https://www.steelsoldiers.com/showthread.php?8460-Front-axle-seals-and-boots-stepXstep

Yes, common. Cork can shrink or maybe had never been cut to fit properly. The outer seal is the one that lets the gear oil leak out.