Douglas was the son of James Douglas, Jr., a mining executive employed by the Phelps Dodge Company, and his wife Josephine Josalee Williams Douglas. Growing up in Bisbee and Nacozari de García, at the age of 11 he was sent east at the insistence of his grandfather, James Douglas to attend school. He spent two years at Hackley School before transferring to Montclair Academy, where he won awards for both academic success and character development, graduating in the class of 1912.
On the advice of Arthur Curtiss James, Douglas attended Amherst College, where he joined Alpha Delta Phi and was involved in both athletics and student government. Though he did not take his coursework seriously at first, his performance improved after taking a course in logic from the college president, Alexander Meiklejohn, and graduated cum laude in 1916 with a degree in economics