Does anyone know the true origin of the word merkin?

Answer 1

The word "merkin" is one of the perpetual bad puns of the Internet. It actually means "pubic wig" (such wigs are used, apparently, in the theatrical and film worlds as modesty devices in nude scenes). It can also be a contrivance used by male cross-dressers designed to imitate the female genitals, or, as Eric Partridge delicately puts it, "an artificial vagina for lonely men". The OED dates it 1617 in the sense "pubic wig"; the origin is unknown.

Then "merkin" was coined afresh to mean "an American", because it sounds a bit like the half-swallowed pronunciation of "American" by some Americans, particularly President Lyndon Johnson; and the fact that it had a "naughty" meaning didn't hurt. Punning use of the word dates back to at least the early 1960s. Bill Fisher writes: "I'd guess multiple re-invention is going on here. When I was fooling around with the Orange Blossom Playhouse in Orlando, FL, about 1963, we were amusing ourselves with trying to change a word here or there in the play 'Teahouse of the August Moon' -- without really screwing anything up -- and one guy cracked the cast up one night when instead of the line 'But ... but ... he's an American!' he said 'But ... but .. he's a Merkin!' (The cast had been laughing for a week or two about the definition of 'merkin' that someone had found in a dictionary.)"

Answer 2

merkin
"female pudenda," 1535, apparently a variant of malkin (q.v.) in its sense of "mop." Meaning "artificial vagina or 'counterfeit hair for a woman's privy parts' " is attested from 1617. According to "The Oxford Companion to the Body," the custom of wearing merkins dates from c.1450, was associated with prostitutes, and was to disguise either pubic hair shaved off to exterminate body lice or evidence of venereal disease.
"This put a strange Whim in his Head; which was, to get the hairy circle of [a prostitute's] Merkin .... This he dry'd well, and comb'd out, and then return'd to the Cardinall, telling him, he had brought St. Peter's Beard." [Alexander Smith, "A Complete History of the Lives and Robberies of the most notorious Highwaymen," 1714]