The person who is widely credited with coining the saying in its current form is Margaret Wolfe Hungerford (née Hamilton), who wrote many books, often under the pseudonym of 'The Duchess'. In Molly Bawn, 1878, there's the line "Beauty is in the eye of the beholder" I found this at The Phrase Finder http://www.phrases.org.uk/meanings/59100.html
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