Usually stated sarcastically with the implication that a person must be either gullible or ignorant because if they believe that they'll even believe the moon is made of cheese.
Just as for last week's proverb, 'he who laughs last laughs best', we have John Heywood's book of proverbs (1546) to thank for this week's saying.
In this context 'green' (in the original 'greene') does not refer to the color but rather the youthful age of the cheese.
Then we must ask the question whether the writer actually believed that the moon was made of cheese, aged or otherwise? The answer to which appears to be a firm no.
A later citation, albeit almost a century later, states, broadly speaking: "You may as soon persuade some Country Peasants, that the Moon is made of Green Cheese as that 'tis bigger than his Cart-wheel." (Wilkins, New World 1, 1638).
The gist of this being that not even the most ill educated of country folk would actually believe the moon to be made of cheese.
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