Michael Baldwin, a tall, slouching man with a thick, graying mustache, is a professional comedian and self-professed dumpster diver. He started rifling through the curbside trash and junk stores to find props for his act, but soon it became an end in itself as he kept finding plastic toys, metal lunch boxes, and board games that delighted him as much visually as nostalgically. Thus he found himself in the lobby of the American Visionary Art Museum in early October, chattering about the children’s lunch boxes that form a rectangular frame around the title of the museum’s new year-long show What Makes Us Smile? Hanging from the ceiling just beyond that sign are Baldwin’s strange assemblages of toy parts—a black rubber shark with silver jet wings, a plane fuselage with cellophane angel wings, a hawk’s head, and a black helicopter with orange feathers.

“This is all about turning trash into treasure,” Baldwin says, as he gestures overhead. “But isn’t that what every museum does—turning trash into treasure? Wasn’t there a time when no one wanted old Greek statues or Van Gogh paintings before someone recognized their value? Isn’t it all a form of dumpster diving or, as they say, urban archeology? Isn’t it all about recognizing the value of something someone else threw away?”

I don’t know if that’s what every museum does—I doubt Rembrandt’s portrait of Aristotle or the Hope Diamond went through a trash phase—but it’s certainly what AVAM does. And though the museum’s founder, Rebecca Hoffberger, was standing next to Baldwin and trying to make the case that the exhibit was a penetrating look at the nature of humor—a topic so broad it’s almost meaningless—Baldwin had touched on a far more interesting aspect of the new show: the alchemy of trash to treasure.

Whether they are the bottle caps that Mr. Imagination transformed into a towering royal throne, the fabric scraps that Chris Roberts-Antieau used for a textile collage about “Koko the Talking Gorilla,” the 1,500 translucent toothbrushes that Nadya Volicer assembled into a mosaic welcome mat, the orange and green inner-telephone wires that Wayne “Mad Max” McCaffery wove into cookie jars topped by helmeted human figures, or the ragged-edged, discarded plywood boards that Chuckie Williams filled with paint and glitter for his portraits of Bo Diddley and Madonna, the unlikeliest of materials have become the most striking of objets d’art at AVAM.

This alchemy has two consequences. First, it changes how we think about museums. If Williams’ house paint on plywood scraps can be as personal and memorable as the most expensive oils on the most expensive canvas, what does that say about our notions of beauty and our assumptions about the ante one must pay to get into the beauty poker game? Second, it changes how we think about the world outside museums. As we walk the sidewalks of Baltimore, the bottle caps, abandoned clothing, forgotten toys, snips of wiring, and fallen auto parts lying by the curb no longer look like bothersome garbage but rather potential works of art. This is the rare show that not only creates a zone of beauty within the museum’s walls but suggests a hidden beauty outside those walls.