The story of the Theosophical Society beings with Helena Petrova Blavatsky. "Madame Blavatsky", as she was often known, was born in Russia but traveled extensively in Europe, America, and the Far East.
While in Paris in 1858, she discovered Spiritualism -- an American trend that had begun a decade before. It was based around "mediums" who could supposedly communicate with the "spirit world", and who demonstrated this with evidence such as coded rapping noises, the sounds of bells and voices, movement of furniture, claims of clairvoyance and even the apparent materialization of solid objects.
(You may have a relic of Spiritualism in your house -- it is from Spiritualism that the planchette, the "pointer" used on a Ouija board, originated.)
Blavatsky supposedly "discovered" that she had mediumistic abilities, and eventually brought them to the United States. Now, before proceeding any further with this part of the tale, we ought to reveal that Blavatsky's abilities -- like those of Fox sisters who started the Spiritualism movement -- were eventually revealed as a fraud.
There may have been some honest Spiritualist mediums, people of extraordinary intuition who attributed their own insights to external influences. But as for the more exotic apparitions, while it took magicians like Houdini to uncover the most clever tricks, no one was able to produce their exotic phenomena under rigidly controlled conditions.
Blavatsky may have had good intentions. She may have been trying to bring about positive social and political changes. She may have been using what the Buddhists refer to as "expedient means" to get her spiritual ideas across. She may have even managed to convince herself that she genuinely had powers. But for the record, your author stands squarely on the side that declares Spiritualist phenomena a bunch of trickery.
In 1874, Blavatsky was attracted by spiritualistic goings-on to the Eddy farm in New York. There she met and befriended Henry Steel Olcott, a journalist and lawyer of sterling reputation. Blavatsky and Olcott became the center of a social circle focused on the investigation of spiritualist phenomena and of the "laws which lie in back" of them -- in Blavatsky's word, Occultism. They soon founded the Theosophical Society to pursue these investigations.
The Society's stated purposes included helping members to "acquire an intimate knowledge of natural law, especially its occult manifestations," "to oppose the materialism of science and every form of dogmatic theology, especially the Christian, which the Chiefs of the Society regard as particularly pernicious", "to make known among Western nations the long-suppressed facts about Oriental religious philosophies," and "to aid in the institution of a Brotherhood of Humanity, wherein all good and pure men, of every race, shall recognize each other as the equal effects ... of one Uncreate [sic] Universal, Infinite, and Everlasting Cause."
Blavatsky claimed that in her travels she had encountered a group of teachers, variously referred to as "Masters", "Adepts", "Mahatmas", or "Chiefs", who represented the peak of spiritual evolution and who were the origin of the teachings she presented.
The idea of a hidden order of adepts is very similar to ideas presented in the 1790s by the Christian mystic Karl von Eckartshausen in The Cloud Upon the Sanctuary, a work that had a great impact on later occult societies. Blavatsky may have adopted it from the "Unknown Superiors" found in the Rosicrucian Freemasonry of her great-grandfather.
Most skeptics have assumed that Blavatsky's Secret Chiefs were entirely fictional. But more recently, historian K. Paul Johnson has suggested that Blavatsky was initially in league with Masonic and Rosicrucian societies who wanted to undermine dogmatic Christianity and revive occultism, and later allied herself with anti-colonial activists in India. With a bit of disguise, the leaders of these groups were the Masters who guided her and Olcott.
If this is the case, how should we regard Blavatsky's fraud? Her mediumistic tricks were a way to promote her Theosophy, but was her Theosophy merely a way to get people to follow her political causes? Or was there a genuine spirituality, and the phenomena an expedient means to draw attention to the teachings she thought true?
Claiming direction from her Masters, in 1877 Blavatsky published Isis Unveiled, which proposed that the world's religions were decayed fragments of an original system taught to the world by the civilization of Atlantis. It was an idea she seems to have borrowed (without credit) from an 1837 work by Godfrey Higgins, Anacalypsis: An Attempt to Draw Aside the Veil of the Saitic Isis. Blavatsky, however, placed more emphasis on Eastern philosophy, and identified the Atlanteans with her Mahatmas.
Isis Unveiled was a great success, selling out its first run of 1,000 copies within ten days. But the Society itself started to dissipate: Blavatsky refused to produce mediumistic phenomena, claiming that the underlying philosophy was more important, and Spiritualists drifted from her movement away.
Olcott and Blavatsky decided to follow up contacts in India and Ceylon, where anti-colonial and nationalist movements were causing renewed interest in Vedanta and Buddhism. At the end of 1878 they departed for India.