It comes from a sermon illustration by the evangelist Dwight L. Moody. Ed Reese, in his biographical sketch of Philip Bliss:

"One time Mr. Moody was telling the story of a shipwreck in one of his messages. On a dark stormy night, a large passenger boat cautiously edged toward the Cleveland harbor. The pilot knew that he could only find the harbor channel by keeping two lower shore lights in line with the main beacon. "Are you sure this is Cleveland?" asked the captain. "Quite sure, Sir," replied the pilot. "Where are the lower lights?" he asked. "Gone out, Sir!" was the reply. The pilot turned the wheel, but in the darkness, he missed the channel. The boat crashed on the rocks and many lives were lost that night. Mr. Moody's closing words were, "Brethren, the Master will take care of the great lighthouse; let us keep the lower lights burning." At the next meeting with Mr. Moody, Mr. Bliss sang this song... Let the Lower Lights Be Burning. It was published in 1874. It is said that this was the favorite hymn of Billy Sunday."

Dan