James Murray was born in the village of Denholm near Hawick in the Scottish Borders, the eldest son of a draper, Thomas Murray. His brothers included Charles Oliver Murray and A. D. Murray, later editor of the "Newcastle Daily Journal". He was christened plain "James Murray", but in 1855 he assumed the extra names "Augustus Henry" in order to distinguish himself from other James Murrays in the Hawick area. A precocious child with a voracious appetite for learning, he left school at fourteen because his parents were not able to afford to pay the fees to continue his education. At seventeen he became a teacher at Hawick Grammar School and three years later was headmaster of the Subscription Academy there. In 1856, he was one of the founders of the Hawick Archaeological Society.