What is the origin of "a cut above/below the rest"?

The derivation offered by Robusto is plausible; but I think he’s been misled by his source, which jumps to an insupportable conclusion.

That source, the Random House ‘Word of the Day’ page, depends for its definitions and all but one of its citations on OED 1, sv Cut sb.2. But OED doesn’t “derive” the phrase from the sense ‘shape’ or ‘style’; it classifies it under the same branch III as a different sense, thus:

III. 16. The shape to which, or style in which, a thing is cut; fashion, shape (of clothes, hair, etc.) […]
b. fig. Fashion, style, make. […]
c. The cut of one’s jib: one’s general appearance or look. […]

17. Phrase. A cut above (some person or thing) : a degree or stage above. colloq.

OED does not specify why it associates senses 16 and 17; and I have been able to find very little to link them. I've run Google Books searches for the years 1600-1799 on higher cut and lower cut and superior cut and inferior cut and even better cut, and found only this, from Maty’s 1787 translation of Riesbeck’s Travels Through Germany, in a passage about the Emperor's attention to military detail: “[he] writes to the taylor and shoemaker of the army to give the clothes a better cut and the shoes a better slit”. This is clearly a matter more of field quality than of fashion.

What I have found, however, may be relevant. To begin with, there are several OED citations which the Random House passage overlooks. The most remarkable is the first under sense 17, our phrase:

[1797 Lamb Lett. (1888) I.78 There is much abstruse science in it above my cut.]

This version of the phrase has a fifty-year history behind it:

1795 Charlotte Smith, Montalbert, iii.134: "As to the Vyvians, you know, they are grand folks, much above our cut … "

1770 Francis Gentleman, The Dramatic Censor, p.348, compares the work of several actors in the same role: "As to Mr. Jefferson, we think the part above his cut.”

1765 Charles Johnstone, Chrysal ; or, the Adventures of a Guinea, iii, xlv, the speaker, a wealthy merchant, gloats that he has beaten a rival: "I was once afraid that he smoaked my design, he came so near some unlucky circumstances; but it was above his cut. All his schemes are common, and low-lived. This of mine is a master-stroke."

1767 Oliver MacAllester, Esq. A Series of Letters, Discovering the Scheme Projected by France, i, 216: " … does he think I am qualified to be a spy, and intends to employ me as such[?]. If that should be the case, please to tell his lordship, it is a trade I never understood, nor never will learn; and that I would not engage in it for the kingdom of France. It may do well enough with some great men, with those who Voltaire calls illustrious spies; but it is above my cut."

1765 The London Intelligencer 34, 455, from a comic dialogue: "I never trouble my head about state affairs, not I, they are in better hands than mine; I never fish in troubled waters, not I : Let things go how they will I shall make myself contented for you know what signifies fretting about what one cannot help—The good of the nation is a subject above my cut—I wish them well at t’other end there, with their cabinets and their councils. But politics is no business of mine; it is quite out of my spear [sic] —"

1764 A satirist in The Public Advertiser affects an inability to offer an expert judgment of a painting : "… being a country-fellow, I thought it above my cut."

The earliest instance of the phrase I have found comes from

1747 “The Two-Shilling Butcher”, a political cartoon decrying open electoral bribery by the Government candidates at Westminster, Lord Trentham and the Duke of Cumberland, the “Butcher of Culloden”. It is described in Thomas Wright, Caricature History of the Georges, 1904, 169-70 : The Duke gravely observes, "My Lord, there being a fatality in the cattle, that there is 3000 above my cut, though I offered handsome." The individual thus addressed, an elegantly dressed figure, intended apparently to represent Lord Trentham, exclaims in reply, dissatisfied at the low price which the Duke had offered for votes, " Curse me ! you'd buy me the brutes at two shillings per head, bonâ fide."

This older version of the phrase survives into the 1820s:

1816 Cobbett, State Trials, xviii, no.515, on the arrest of the Jacobite James Bradshaw: "There he behaved with the greatest insolence imaginable, and did not scruple voluntarily to tell those officers belonging to his majesty who had the care of him, that they could not hurt him, for he was above their cut, or words which carried the same meaning."

1822 In Wine and Walnuts, W.H.Pyne, a quarrel between a middle-class alderman and a snotty gentleman-lawyer: “The alderman had advanced something concerning Milton, and quoted a few lines correctly enough. ‘Where the devil did you read that?’ said the lawyer ; ‘that’s a book above your cut, I’d be sworn.’”

But the modern version emerges in the 1790s:

1794 Anthologia Hibernica, 110, An admirer of Gray, objecting to Dr. Johnson’s criticism of the poet, claims ironically that Johnson’s observations are over his head: "As to the latter branch of Johnson’s observation, it is a cut above me.—I cannot see how the second line is faulty …"

Sir Walter Scott uses the modern version frequently. OED provides a citation in dialect, from The Heart of Midlothian (1818): “Robinson is rather a cut abune me.” In a letter sometime after 1811 (Google’s ‘snippet’ view prevents me from pinning it down more precisely) Scott writes a friend that “… after paying duty and carriage you have wine of the very first quality much cheaper than any you can get from a merchant in London. The hocks are a cut above me: Johannesberg Ansbruch is fifteen and sixteen shillings if of the vintage 1811.” In The Fortunes of Nigel (1822), he rejects advice to publish “a volume of dramas like Lord Byron’s”: “No ; his lordship is a cut above me—I won’t run my horse against his if I can help myself.” And in his St. Ronan’s Well (1823), a character contrasts himself with a rival: “Confound the fellow—he is a cut above me in rank and in society too—belongs to the great clubs, and is in with the Superlatives and Inaccessibles and all that sort of folk.—My training has been a peg lower—but hang it, there are better dogs bred in the kennel than in the parlour.”

What is worth remarking here is how closely these uses parallel those of the older phrase. Both are used to denote superiority/inferiority across the same variety of fields: financial capacity, social standing, intellectual ability, critical discernment. Above my cut and a cut above me both mean essentially the same thing: today we’d say “out of my class”, or “out of my league”.

And none of these uses has any reference to fashion or tailoring.

Where, then, did the use of cut to denote “rank” or “class” come from?

OED offers what it regards on historical and orthographical grounds as a distinct word, perhaps related to Welsh cwt: **CUT sb. 1 **. It defines this meaning as “lot”, in the sense of draw lots (OED ), and notes uses of the word to denote not only the physical object drawn but also the result of the drawing.

2. (One’s) lot, fate, fortune . . .

The use of lot to mean “one’s allotted role or station” or “one’s sort” or “one’s proper place in society” is quite familiar; and in fact OED cites for this sense Palsgrave’s 1530 glossing of “Cutte or lotte” as equivalent to French “sort”.

(There is also keep one’s cut, which OED assigns to Cut sb.2; one sense often ascribed to it is “to put up with (one's) lot; know (one's) position or circumstances MED sv cut 2.b..” But this is controversial.)

This meaning looks very plausible for two more citations given by OED for sense 16.b. One is this:

1628 Prynne Lovelocks 25 Others of the common rank and cutt. .

I have not been able to track down an online copy of William Prynne’s Health's Sickness. The Unloveliness of Lovelocks, so I can’t speak to the context of his “common rank and cutt”. There may be some punning involved: this work is the loathsome Prynne’s diatribe against long hair on men and short hair on women. But an instructive parallel is found in this, from a near-contemporary (1646) sermon The Burden of Issachar:

… to cover his Sins from the World, to hide his Shame, and the better to effectuate his private Designs, he made much of some few prime leading Ministers; by doing of which, he was not challeng’d for his Sins, and was enabled to work his other ends. This hath been, and is this day a constant course kept by all of that Cut and Coat.

Here cut and dress are brought into close association—but coat is employed in two very common 17th-century figurative senses: "6. garb, as indicating profession (e.g. clerical) ; hence profession, class, order, sort, party" and "10. anything that covers, invests, or conceals " (OED, s.v. Coat). The association is fortuitous, at most one of alliteration; fashion or manner of cutting doesn't come into it.

The second OED citation is even more interesting:

1741 Richardson Pamela [...] My mother was one of this old-fashioned cut

At first look this appears to be, as OED takes it to be, the fashion sense, and indeed it occurs in a passage which starts by talking about dress; but cut itself is about something altogether different. Here's the context (with substantial ellipsis—there's a limit to how much of Richadson’s prolixity can be borne):

" I have often observed, in married folks, that the lady soon grows careless in her dress; which, to me, looks as if she would take no pains to secure the affection she had gained ; and shews a slight to her husband, that she had not to her lover. Now, you must know, that has always given me great offence ; and I should not forgive it even in my Pamela, though she would not have this excuse for herself, which thousands could not make, that she looks lovely in every thing. So, my dear, I shall expect of you always to be dressed by dinner-time, except something extraordinary happens : and this, whether you are to go abroad, or stay at home. [...] you may better do this than half your sex ; because they too generally act in such a manner, as if they seemed to think it the privilege of birth and fortune to turn day into night, and night into day, and are seldom stirring till 'tis time to sit down to dinner; and so all the good old family rules are reversed: for they breakfast when they should dine ; dine when they should sup; and sup when they should go to bed ; and, by the help of dear quadrille, sometimes go to bed when they should rise. In all things but these, my dear," continued he, "I expect you to be a lady. My good mother was one of this old-fashioned cut, and in all other respects, as worthy a lady as any in the kingdom."

Cut refers not to fashion but to behavior—specifically, behavior appropriate to one's lot, sort or standing.

And the date of this passage, 1741, brings us into the same decade as the earliest appearance of “above my cut”.

EDIT: Thanks to SevenSidedDie for raising objections which echoed my own sense that the Random House explanation smelled bad.

It comes to us from tailoring by way of fashion.

cut
n
3 [ in sing. ] the way or style in which something, esp. a garment or someone's hair, is cut: the elegant cut of his dinner jacket.

Obviously, some cuts were better than others, a fact that has been obvious to observers and writers throughout the ages. From the Random House 'Word of the Day' page:

A cut above means 'a level or grade above; superior to'. The cut in the phrase derives from the sense 'shape' or 'style; fashion; appearance'. The original and literal meaning was 'the result of cutting', as with a sharp instrument. You can see the logic of the transition from actual cutting to appearance in citations like Shakespeare's "With eyes seuere, and beard of formall cut" (As You Like It, 1600), or this 1805 citation from Naval Chronicles: "From the cut of her sails an enemy." (This also explains where the phrase "The cut of one's jib" comes from.)

A cut above can serve as a direct comparison, as in this bit of nineteenth-century fiction from the journal Southern Literary Messenger: "Brother Skinner was a stout, likely young man. He had been stationed twelve months at Augusta, and in manners and costume quite a cut above brother Hardy" (1840). The phrase can also contrast a person's current station in life with material signs of greater wealth, position, etc.: "When I first saw it, by Jove! it looked so knowing, with the front garden, and the green railings and the brass knocker, and all that--I really thought it was a cut above me" (Dickens, Sketches by Boz, 1836).

There is even evidence for the much more rare a cut below, as in the following 1891 quote by A. B. Walford: "The girl herself is a cut below par."