Tao Teh Ching Chapter 38

上德不德，是以有德；下德不失德，是以无德。
上德无为而无以为；下德为之而有以为。上仁为之而无以为；上义为之而有以为。上礼为之而莫之应，则攘臂而扔之。
故失道而后德，失德而后仁，失仁而后义，失义而后礼。
夫礼者，忠信之薄而乱之首。前识者，道之华而愚之始。是以大丈夫处其厚，不居其薄；处其实，不居其华。故去彼取此。

Translation
Those who possess the highest Teh (virtue) do not know the Teh; therefore they possess the Teh; those who have inferior Teh active in order not to lose the Teh and therefore they don’t possess the Teh. Those with the highest Teh do not act, as there is no desire involved when acting; those with inferior Teh act because of their desire to achieve. Those who possess the highest love act however they are desireless, those with the highest rectitude act and their desire is strong. Those with the highest ceremonial observances act and they found no one responding, thus ceremonial observances are thrown away with bare arms.
Therefore when the Tao is lost, Teh emerges; When Teh is lost, Love comes forth; When love is lost, there comes the rectitude; when rectitude is lost, there arises ceremonial observance.
Now the observance of ceremonies is the result when loyalty and credibility is reduced to flimsy level and is thus the beginning of disorder; Knowledge, on the other hand, is the external splendour of the Tao and is the onset of stupidity. Therefore the sage resides in the solid foundation and not the flimsy, on what are the truth and not the splendour display.

Comments
德, Teh, first appears here in Chapter 38, almost half way through the Tao Teh Ching. It is commonly interpreted that the Teh is the manifestation of the Tao in action. A possessor of the Tao acts with Teh. The closest word in English is virtue, however, subtle differences remains to be appreciated.
In the first paragraph, Lao Tzu first defines the highest virtue. Surprisingly when you have the highest virtue, you don’t realize that yourself. When you act hard to retain the “virtue” defined by the society, and then you do not have the real virtue. This reminds me Jesus reprimand the Pharisees. The Pharisees act with so called rectitude and seemingly has the highest virtue, however in the eyes of Jesus, they are worse than the prostitutes and tax collectors. The Pharisees 无德.
The second paragraph is very logically written. The basic concepts here are two things. Do you act? Do you have desire when acting? The answer to these two questions determines what type of Virtue you have got. It is quite clear the highest virtue involves no intension and no action, while the lowest virtue is the contrary. In between, we have love and rectitude. Love is closest to virtue. Rectitude is closer to the inferior virtue. 礼, Li, ceremonial observance or act according the rank, class and background. Li is treated separately, it is so bad what it has to be thrown away will full strength.
After this, we can now understand why in the third paragraph the hierarchy is like this: 道，德，仁，义，礼.
In the last paragraph, Lao Tzu renounced the 礼 and 识, but he did not specify how he reached the conclusion. Here is a personal interpretation of what I believed is the reason. The 礼 and 识 are all quest for external objects. The Tao is in the inside, trying to find the Tao from the outside is in vain. 德, in essence is not Tao, although it is the manifestation of it. It is becomes an external object if you possess it. The man with the Tao do not possess the 德, because he is totally internal, and thus we have上德不德.