Burley was established in 1898 as a cooperative socialist colony, by a group called the Co-operative Brotherhood, an offshoot of the Brotherhood of the Co-operative Commonwealth that had established Equality colony elsewhere in Washington state in the previous year. Both communities were part of an attempt to plant socialist colonies in Washington in order to convert first the state, and then the entire nation, to socialism.
Burley was originally named Brotherhood. Circle City was an area of the colony with buildings laid out on the periphery of a circle. In its earliest years the community achieved a maximum population of approximately 150 people; but like some other planned towns of the era such as Equality Colony, its population endured a long decline through the ensuing years. The local economy was dominated by the lumber industry; other businesses never flourished, though a cigar-manufacturing effort did achieve some short term success.