The first three verses are sung straight, an idyllic recollection of a youth surrounded by the sounds of the narrator's father's music:
Daddy played the banjo, ‘neath the yellow tree.It's absolutely standard this-music-came-down-to-me-from-my-ancestors, justify-traditional-styles lyrics. You'll hear it in any modern musical style that somehow pays homage to pre-electronic styles... heck, you'll hear it in homages to "old-time rock and roll." The lyric that came to mind for me was John Denver's "Thank God I'm a Country Boy."
It rang across the backyard, an old time melody.
I loved to hear the music; I was only five.
I listened as his fingers made the banjo come alive.
Sometimes I’d wake up at night, and hear a distant tune.
The banjo would echo, ‘round my childhood room.
I’d sneak down the back stairs—Daddy never knew.
I’d grab a broom and make believe, I was pickin’, too.
One day Daddy put my fingers down upon his fist.
He picked it with his other hand, we made the banjo ring;
Now the music takes me back, cross the yellow day.
To the summers with my Dad, and the tunes he made.
Then comes a bridge and the fourth verse:
But I’m just tellin’ lies ‘bout the things I did—Now, if you'll notice, verses 1-3 didn't say anything about the adult narrator and his kids. So his saying he never had kids doesn't show the first three verses as lies. So what's the lie? If he was sweepingly lying about his childhood—and if we take this to be Mr Martin's personal narration, which is of course a risk, then yes, it is made up; he first taught himself the banjo as a teenager and has learned it from friends and collagues since then—if he is lying, then this is supposed to be the "real truth" behind his banjo playing, that it's not about the past and where he learned it, it's about the audience. He hopes a kid will be listening to him.
See I’m that banjo player who never had a kid.
Now I sit beneath that yellow tree.
Hopin’ that a kid somewhere, is listening to me.
Daddy played the banjo, ‘neath the yellow tree.The narrator repeats that initial idyllic vision and then closes with a variant on how music takes us back...it takes us back into an invented good old days. It creates nostalgia.
It rang across the backyard and wove a spell on me.
Now the banjo takes me back, through the foggy haze,
With memories of what never was, become the good old days.
The whole song is performed with comforting old-time instrumentation, and a buttery, comforting vocal (not Martin's own kind of frenetic and always kind of snide vocal style). It's possible to glide right over the words. And in fact, while the words deconstruct the comforting past of folky musics, they also point to its appeal, and slide right into that appeal. The line about the performer sitting under the tree hoping a kid is listening to him, really get to the heart of this constructed fiction.
The point is, we who work in folk idioms (and as a morris dancer and sometimes singer I think of myself that way some of the time) are indeed constructing a fiction. But that fiction isn't about hagiography of country life for its own sake. It's to use comfort and selected older values as the basis for constructing our own lives and offering that to our audience. By calling up aspects of the "good old days" and bringing them into the present, we offer a gentle sort of critique. Why not dance and sing? Why not celebrate the seasons? Why not get closer to the food you eat? Why not listen to friends and family making music, and make some yourself? Here, it can be fun.
I'm reminded of Ray Bradbury's short story "The Toynbee Convector," in which a man invents a time machine, goes forward in time and comes back with a dazzling vision of the future, which the world starts getting behind, and eventually builds. As he nears the end of his life, the inventor reveals the whole thing was a fiction: no time machine, just a detailed model in his basement. But the earth bought it, and now has moved into that dazzling future anyway.
We receive some of our hope and love and Light from outside of ourselves, but we get to make some of it ourselves too. And we can do it out of whole cloth, like the kid from the suburbs who learned to play the banjo from a book and some records, and can construct a whole fictional past which we, too, buy. Mostly. The important bits, anyway.