“The Irish gave the bagpipes to the Scots as a joke, but the Scots haven’t seen the joke yet” is a classic joke about that musical instrument. “One of the favorite wisecracks of American vaudeville was that the Irish gave the bagpipes to the Scotch and that the latter, not being able to see through the joke, accepted the pipes as serious musical instruments” was cited in print in 1938.
 
American writer and illustrator Oliver Herford (1863-1935) has been given credit in many books published in the 2000s, but it’s not known where—or if—he wrote the line.
 
     
Wikipedia: Oliver Herford
Oliver Herford (1863–1935) was an American writer, artist and illustrator who has been called “The American Oscar Wilde”. As a frequent contributor to The Mentor, Life, and Ladies’ Home Journal, he sometimes signed his artwork as “O Herford”. In 1906 he wrote and illustrated the Little Book of Bores. He also wrote short poems like “The Chimpanzee” and “The Hen”, as well as writing and illustrating “The Rubaiyat of a Persian Kitten” (1904) and “Excuse It Please” (1930). His sister Beatrice Herford was also a humorist.
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Quotes
“The Irish gave the bagpipes to the Scots as a joke, but the Scots haven’t seen the joke yet.”
 
14 August 1938, The Oregonian (Portland, OR), “Bagpipes of Highland Scots Find Favor in Many Nations” by Joseph McIntosh, sec. 3, pg. 3, col. 5:
One of the favorite wisecracks of American vaudeville was that the Irish gave the bagpipes to the Scotch and that the latter, not being able to see through the joke, accepted the pipes as serious musical instruments.
     
29 December 1963, Seattle (WA) Times, “Polish Piper Sticks His Chin Out” by Louis Guzzo, pg. 31, col. 1:
Then, with tongue in cheek, Szponder added: “in fact, the Irish gave the bagpipes to the Scots as a joke, but the Scots haven’t caught on yet.”
 
Google Books
Piping Times
Volumes 17-18
1964
Pg. 11:
Actually, the Irish say that they gave the bagpipes to the Scots — and the Scots haven’t seen the joke yet.
   
Google Books
The Bermudian
Volume 39
1968
Pg. 19:
Which reminds us of that fellow from Dublin who claimed that the Irish gave the bagpipes to Scotland and that the Scots haven’t seen the joke yet.
 
Google Books
The Quotable Intellectual:
1,417 Bon Mots, Ripostes, and Witticisms for Aspiring Academics, Armchair Philosophers…and Anyone Else Who Wants to Sound Really Smart
By Peter Archer
Avon, MA: Adams Media
2010
Pg. 62:
“The Irish gave the bagpipes to the Scots as a joke. Unfortunately, the Scots haven’t seen the joke yet.” —OLIVER HERFORD
 
Google Books
Ireland, A Very Peculiar History
By Jim Pipe
Brighton: The Salariya Book Company Ltd.
2009
Pg. ?:
The Irish gave the bagpipes to the Scots as a joke, but the Scots haven’t seen the joke yet.’
Oliver Herford