E. Cobham Brewer 18101897. Dictionary of Phrase and Fable. 1898.
Lying for the Whetstone.
Said of a person who is grossly exaggerating or falsifying a statement. One of the Whitsun amusements of our forefathers was the lie-wage or lie-match; he who could tell the greatest lie was rewarded with a whetstone to sharpen his wit. The nature of these contests may be illustrated by the following well-known extravaganza: one of the combatants declared he could see a fly on the top of a church - steeple; the other replied, Oh yes, I saw him wink his eye.
When Sir R. Digby declared he had seen the philosophers stone. Bacon quizzically replied, perhaps it was a whetsone.