The phrase (as) happy (or jolly) as a sandboy means extremely happy or carefree—cf. also happy as a clam and happy as Larry.

A sandboy was a boy hawking sand for sale. It seems that the earliest use of the word is The Rider and Sand-boy: a Tale, the title of a poem written by a certain Mr Meyler and published in Harvest-Home in 1805:

A poor shoeless urchin, half-starv’d and sun-tann’d,
Went by the Inn window crying, “Buy my fine sand.”

The phrase itself is first recorded in Life in London; or, The Day and Night Scenes of Jerry Hawthorn, Esq. and his elegant Friend Corinthian Tom, accompanied by Bob Logic, the Oxonian, in their Rambles and Sprees through the Metropolis (1821) by the sporting journalist and author Pierce Egan (1772-1849):

Logic, (as the Plate represents,) appeared as happy as a sand-boy, who had unexpectedly met with good luck in disposing of his hampers full of the above household commodity in a short time, which had given him a holiday, and was listening to the jargon of Black Sall, who was seated on his right knee.

LOWEST “LIFE in LONDON”—Tom, Jerry and Logic among the unsophisticated Sons and Daughters of Nature at “All-Max” in the East. – illustration by George Cruikshank (1792-1878)

 

The phrase was first defined, the sandboy being again described as a cheerful ragamuffin, by John Badcock, writing under the pseudonym of Jon Bee, in Slang. A dictionary of the turf, the ring, the chase, the pit, of bon-ton, and the varieties of life (1823):

Sand-boy—all rags and all happiness; the urchins who drive the sand-laden neddies through our streets, are envied by the capon-eating turtle-loving epicures of these cities. ‘As jolly as a sand-boy,’ designates a merry fellow who has tasted a drop.

(A capon is a castrated domestic cock fattened for eating. An epicure is a person who takes particular pleasure in fine food and drink.)

This intake of alcohol was proverbial enough, and the phrase familiar enough, to have an inn named after them in The Old Curiosity Shop (1840-41), by the English novelist Charles Dickens (1812-70):

The Jolly Sandboys was a small road-side inn of pretty ancient date, with a sign, representing three Sandboys increasing their jollity with as many jugs of ale and bags of gold, creaking and swinging on its post on the opposite side of the road.

In Three to One: or Some Passages out of the life of Amicia Lady Sweetapple (1872, but first published in 1871 in Belgravia: A London Magazine), George Webbe Dasent (1817-96) gave the most plausible explanation of the phrase:

He could sit with Theodore Hook by the fire in the dining-room of the Sarcophagus Club, and drink each a bottle of ’20 port, and then return home as jolly, as the saying used to be, as ‘sand-boys.’ We suppose, as sand-boys follow a very dry and dusty trade, they are traditionally believed to require a great deal of liquor to moisten their clay.

In London Labour and the London Poor (1851 edition), in the chapter titled Of the Street-Sellers of Sand, Henry Mayhew (1812-87), English social researcher, journalist, playwright and advocate of reform, explained what sand was used for, and why the trade had already declined by the time he was writing:

Two kinds of sand only are sold in the streets, scouring or floor sand, and bird sand for birds.
In scouring sand the trade is inconsiderable to what it was, saw-dust having greatly superseded it in the gin-palace, the tap-room, and the butcher’s shop. Of the supply of sand, a man, who was working at the time on Hampstead-heath, gave the following account:
“I’ve been employed here for five-and-thirty years, under Sir Thomas Wilson. Times are greatly changed, sir; we used to have from 25 to 30 carts a day hawking sand, and taking six or seven men to fill them every morning; besides large quantities which went to brass-founders, and for cleaning dentists’ cutlery, for stone-sawing, lead and silver casting, and such like. This heath, sir, contains about every kind of sand, but Sir Thomas won’t allow us to dig it. The greatest number of carts filled now is eight or ten a day, which I fill myself. Sir Thomas has raised the price from 3s. 6d. to 4s. a load, of about 2½ tons. Bless you, sir, some years ago, one might go into St. Luke’s, and sell five or six cart-loads of house-sand a week; now, a man may roar himself hoarse, and not sell a load in a fortnight. Saw-dust is used in all the public-houses and gin-palaces. People’s sprung up who don’t use sand at all; and many of the old people are too poor to buy it. The men who get sand here now are old customers, who carry it all over the town, and round Holloway, Islington, and such parts. Twelve year ago I would have taken here 6l. or 7l. in a morning, to-day I have only taken 9s.”

It is interesting to note that by the second half of the 19^th century the origin of the phrase had apparently been lost. The following fanciful etymologies appeared in Notes and Queries of 21^st April 1866:

I once heard a very eminent physician affirm that this expression probably originated in the fact that a gravelly or sandy soil has at all times a salutary and nerve-bracing effect on those who are so fortunate as to reside upon it; whence it may be inferred that the occupation of such labourers as dig and delve all day long, not only in the open air, but also among the sand and gravel pits, must be peculiarly healthful and exhilarating.
B. Blundell, F.S.A

“Sandboy” is the vulgar name of a small insect which may be seen in the loose sand so common on the seashore. This insect hops and leaps in a manner strongly suggestive of jollity, and hence I imagine the simile arises.
Charles F. S. Warren

And in the same publication, dated 5^th March 1870, a certain Erato Hills even suggested the following:

This saying in all probability arises from the sign “The Jolly Sandboys” […] described by Dickens in the commencement of the eighteenth chapter of the Old Curiosity Shop.