1. The Dao produced One; One produced Two; Two produced Three; Three produced All things. All things leave behind them the Obscurity (out of which they have come), and go forward to embrace the Brightness (into which they have emerged), while they are harmonised by the Breath of Vacancy.
2. What men dislike is to be orphans, to have little virtue, to be as carriages without naves; and yet these are the designations which kings and princes use for themselves. So it is that some things are increased by being diminished, and others are diminished by being increased.
3. What other men (thus) teach, I also teach. The violent and strong do not die their natural death. I will make this the basis of my teaching.
道化, 'The Transformations of the Dao.' In par. 2 we have the case of the depreciating epithets given to themselves by kings and princes, which we found before in ch. 39, and a similar lesson is drawn from it. Such depreciation leads to exaltation, and the contrary course of self-exaltation leads to abasement. This latter case is stated emphatically in par. 3, and Laozi says that it was the basis of his teaching. So far therefore we have in this chapter a repetition of the lesson that 'the movement of the Dao is by contraries,' and that its weakness is the sure precursor to strength. But the connexion between this lesson and what he says in par. 1 it is difficult to trace. Up to this time at least it has baffled myself. The pasage seems to give us a cosmogony. 'The Dao produced One.' We have already seen that the Dao is 'The One.' Are we to understand here that the Dao and the One were one and the same? In this case what would be the significance of the 生 ('produced')?—that the Dao had been previously 'non-existent' now became 'existent,' or capable of being named? This seems to be the view of Sima Guang (A.D. 1009–1086).
The most singular form which this view assumes is in one of the treatises on our Jing, attributed to the Daoist patriarch Lü (呂祖道德經解), that 'the One is Heaven, which was formed by the congealing of the Dao.' According to another treatise, also assigned to the same Lü (道德真經合解), the One was 'the primordial ether;' the Two, 'the separation of that into its Yin and Yang constituents;' and the Three, 'the production of heaven, earth, and man by these.' In quoting the paragraph Huainanzi omits 道生一, and commences with 一生二, and his glossarist, Gao You, makes out the One to be the Dao, the Two to be Spiritual Intelligences (神明), and the Three to be the Harmonising Breath. From the mention of the Yin and Yang that follows, I believe that Laozi intended by the Two these two qualities or elements in the primordial ether, which would be 'the One.' I date not hazard a guess as to what 'the Three' were.
From The Libertarian Reader1
1. (second sentence) All things carry the yin and embrace the yang.
They achieve harmony through their interaction.
From Qigong Meditation: Small Circulation1
1. Dao begets one, one produces two, two generate three, and three derive into millions of objects.2