Te is what the Tao looks like when it appears in a particular thing — its attributes, in James Legge's translation, rather than virtue or power. Chapter 38 argues that anyone conscious of possessing te has already lost it, and that morality is what appears after te is gone.
The word in the title nobody explains
Tao Te Ching is usually rendered as The Classic of the Way and Virtue. The Way gets endless attention. Te gets a gloss — virtue, power, integrity, inner character — and then everyone moves on, which is odd for a word occupying a third of the title.
James Legge, translating in 1891, made a choice most later versions abandoned. He does not say virtue. He says the attributes of the Tao, and titles chapter 38 accordingly. That is not a softer word for the same thing — it is a different claim. Virtue belongs to a person. An attribute belongs to whatever is being described, and here what is described is the Tao showing up in a particular thing.
Te is what you stop having when you notice it
Chapter 38 opens with a sentence that is easy to read past and hard to forget once it lands.
(Those who) possessed in highest degree the attributes (of the Tao) did not (seek) to show them, and therefore they possessed them (in fullest measure). (Those who) possessed in a lower degree those attributes (sought how) not to lose them, and therefore they did not possess them (in fullest measure).
The higher kind does not seek to show the attributes, and therefore possesses them fully. The lower kind is anxious not to lose them, and therefore does not possess them. Self-consciousness is the disqualifier: the moment te is something you are keeping track of, it has become something else.
(Those who) possessed in the highest degree those attributes did nothing (with a purpose), and had no need to do anything. (Those who) possessed them in a lower degree were (always) doing, and had need to be so doing.
Did nothing with a purpose, and had no need to do anything. That is the same qualifier running through the wu wei chapters — Legge's brackets again, marking words he supplies. Te and wu wei are not two doctrines. They are one description from two sides: wu wei is the behaviour, te is what the behaviour expresses.
The descent, which is the point of the chapter
The middle of chapter 38 is a sequence, and it reads as a history of decline compressed into one sentence.
Thus it was that when the Tao was lost, its attributes appeared; when its attributes were lost, benevolence appeared; when benevolence was lost, righteousness appeared; and when righteousness was lost, the proprieties appeared.
Tao lost, and its attributes appear. Attributes lost, benevolence. Benevolence lost, righteousness. Righteousness lost, the proprieties. Each stage is a substitute for the one above — a rule standing in for something that used to happen without a rule.
Read in order, this is an argument about morality itself: codified virtue is evidence that the thing it codifies has already gone. The chapter is not praising benevolence and righteousness. It is dating them.
And propriety, the last stage, gets the sharpest line — those who possessed the highest sense of propriety, when men did not respond, bared the arm and marched up to them. Etiquette ending in coercion is the bottom of the descent.
Te is received, not earned
Chapter 51 supplies the other half, and it is where Legge's reading pays off.
All things are produced by the Tao, and nourished by its outflowing operation. They receive their forms according to the nature of each, and are completed according to the circumstances of their condition. Therefore all things without exception honour the Tao, and exalt its outflowing operation.
Things are produced by the Tao and nourished by its outflowing operation, and receive their forms according to the nature of each. In this frame te is not something a person accumulates through effort. It is what the Tao becomes in this particular thing — the general expressed as the specific.
Which is why chapter 38 can say the highest te does not seek to show itself. There is nothing to show. Te is not an achievement on display; it is closer to a grain running through wood, visible only in how the wood behaves.
How to read the two halves of the title
The book divides at chapter 37 in the traditional arrangement: the Tao section first, the Te section second. With Legge's rendering in mind, the second half is not a change of subject. It is the same subject brought down to the scale of a single thing — a person, a state, a tree.
Chapter 38 is the hinge, which is why it opens that half. Anyone reading the Tao Te Ching for the first time and wondering what te is supposed to be should read 38 and 51 together, in that order, and ignore every gloss — this one included — until they have.
Taoist Diary reads the Tao Te Ching aloud in Legge's translation, chapter by chapter, alongside a narrated passage every morning.