Arizmendiarrieta, whose name is often shortened to "Arizmendi", was born in Barinaga, Markina-Xemein, Biscay, the eldest son of a family of modest means. He had lost an eye in a childhood accident so could not be a soldier. Instead he was a journalist for Basque language newspapers. His actions caused him to be arrested after the Spanish Civil War and he was sentenced to death for his activities; legend has it that he escaped the firing squad only through an administrative oversight. Released, he returned to his studies in Vitoria and went on to take holy orders.
Arizmendi wanted to continue his studies in Belgium but was assigned to a parish 30 miles from his own home town. He arrived in Arrasate (in Spanish, Mondragón) in February 1941, as a 26-year-old newly ordained priest to be assistant curate, to find a town still suffering from the aftermath of the Civil War and severe unemployment. The local priest had been shot by Franco's forces.
Arizmendi did not impress his new flock. Their one-eyed priest read badly; one parishioner described him thus: "He spoke in a monotone with intricate and repetitive phraseology difficult to understand. He hardly ever [read] with grace." They initially asked the Bishop to replace him. Nevertheless, he was determined to find a way to assist his congregation and realised that economic development - jobs - was the key to solutions to the town's other problems. Co-operatives appeared the best way to achieve this. Co-operatives, both consumer and worker, and self-help organisations had a long tradition in the Basque Country but had died away after the War.