Old English wull "wool, fine soft hair which forms the coat of some animals," from Proto-Germanic *wulno (source also of Old Norse ull, Old Frisian wolle, Middle Dutch wolle, Dutch wol, Old High German wolla, German wolle, Gothic wulla), from PIE *wele- (1) "wool" (source also of Sanskrit urna; Avestan varena; Greek lenos "wool;" Latin lana "wool," vellus "fleece;" Old Church Slavonic vluna, Russian vulna, Lithuanian vilna "wool;" Middle Irish olann, Welsh gwlan "wool").
Figurative expression pull the wool over (someone's) eyes is recorded from 1838, American English. To be literally dyed in the wool (1725, as opposed to dyed in the piece) is to be so before spinning, while the material is in its raw state, which has a more durable effect; hence the figurative sense "from the beginning; most thoroughly," attested from 1809, and especially, in U.S. politics, from 1830.