G'day Bert,

"...I was always taught that it was Barmy, derived from the lunatic asylum at Barming in Kent ..."

I think this is another case of "Folk Etymology" (If a word hangs around long enough near something similar ... it will, inevitably, become "associated" - right or wrong.) My(older, Shorter)Oxford gives 1851 as the appearance (in print) of balmy in the sense of "crazy, stupid" ... and the alternative spelling barmy does not appear until 1896. (Incidentally, this I have seen sourced to "barm" - the froth on the head of a fermenting vessel.)

It is interesting that, my (work copy of) The Australian Concise Oxford Dictionary (2nd edition, 1992) has, by then, shifted to "barmy" in this sense and "balmy" for the previous six senses - related to 'balm'. I suspect that this is the result of Oxford accepting that a modern dictionary's role is "descriptive", not "prescriptive" and so they now accept the later spelling, whatever its source or derivation, as current English.

Regards,

Bob Bolton