Folklore influenced Shakespeare in writing some of the most delightful scenes in his plays as well as scenes that establish a tone of darkness and foreboding. Shakespeare used folklore that would have been familiar to his audience to establish mood, to entertain, and to advance his plot.
A Midsummer Night's Dream is one of the best examples of Shakespeare's use of English folklore. As Gail Kern Paster and Skiles Howard point out in their book A Midsummer Night's Dream: Texts and Contexts, Shakespeare drew on a rich tradition in creating the fairies that populate his magical forest, including such popular ballads as "The Fairies Farewell" and "The Mad Merry Pranks of Robin Goodfellow." Audiences would have been quite familiar with stories of wee fairies so tiny they travelled in a nutshell coach and were largely missed by human eyes. He also leaned into lore that attributed bad weather and bad harvests to discord in the supernatural world. In this play, fairies forward the human plot with their mishaps in getting love potions in the correct eyes and their corralling of Bottom into their world.
Festivals such as the Rites of May and Midsummer's Night festivals (midsummer night being the shortest night of the year and thus having a very early sunrise in England) were familiar as well, and Shakespeare plays on them to create a feeling of whimsy and madcap magic in this play.
Darker folklore about witches with their potions, spells, and magic also help establish an uneasy tone in a play such as Macbeth, where the supernatural forces are not so benign as in A Midsummer Night's Dream.
Shakespeare was influenced by stories he heard, read or was told, which would be consistent with the definition of Folklore, stories that are passed down through the oral tradition.
"I imagine that going to the theater was a bit like this for Shakespeare's audience. The plays they watched were not original stories, but familiar ones: English history, adaptations of Italian novels and Roman comedies, retellings of ancient British legends. Playgoers in Shakespeare's time attended plays for the pleasure of hearing beloved stories well told. They also got familiar folk songs, the excitement of seeing well-trained bodies in motion, and a few special effects created out of not much more than bits of string."
Evidence of Folklore can be found in several of Shakespeare's plays, including Macbeth, use of the witches, King Lear, he uses the atmosphere of the carnival life to illustrate Lear's chaos, A Midsummer's Night Dream, he uses fairies, which were part of British Folklore tradition.
The attached link is a rich source for how Shakespeare applied Folklore traditions to the writing of his plays.
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