“A leader is best when people barely know he exists”: did Laozi say it?
Genuine: chapter 17
Yes: “A leader is best when people barely know he exists” is Witter Bynner's version of the first line of chapter 17 of the Dao De Jing, 太上，下知有之.
A leader is best when people barely know he exists.
What the Dao De Jing says
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太上，下知有之。
The great masters: those below only know they exist.
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其次，亲而誉之。
The next are loved and praised.
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其次，畏之。
The next are feared.
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其次，侮之。
The next are despised.
What the Chinese says
太上 is “the very highest”, the best kind of ruler. 下知有之: “those below know that he exists”, and no more. Our translation: “The great masters: those below only know they exist.” James Legge (1891) read it as history: “In the highest antiquity, (the people) did not know that there were (their rulers).” Bynner's “barely” is a fair way to say “only”.
The ranking
The line opens a ranking of rulers, best to worst: “The next are loved and praised. The next are feared. The next are despised.” Bynner keeps the ranking but folds it into one sentence, the best barely known, the obeyed and acclaimed less good, the despised worst. The circulating saying is the start of that sentence. The chapter ends with the people saying of the best ruler's work: “It happened of itself.”
A longer version
A longer passage beginning “Go to the people. Live with them. Learn from them.” also circulates as Laozi's. Wikiquote lists it as misattributed: only its last part, on the people saying they did it themselves, comes from chapter 17, and the opening is of unclear origin.