Back in the 14th and 15th centuries, wool was a national product to England and very important. During the reign of King Charles II, he passed an act in which would increase the consumption of wool so it would overtake the sales and usage of other imported fabrics.
Following this act, the Burial of Woollen Acts meant that when someone died, they would be covered completely in a woollen shroud unless they died from the Plague and there was a sworn affidavit. If not, then there would be a very high fine (in old terms money) of £5. This act meant- "No corps should be buried in anything other than what is made of sheep's wool only; or put into any coffin lined or faced with any material but sheep's wool, on pain of forfeiture of £5."
This was repealed in 1814.
So the saying "You can't pull the wool over my eyes" comes from the law that being buried in a shroud of wool and meant you were not dead!