The high-rolling bids for the oil wells and coal fields of Conoco Inc. have revived a debate about the American economic system that can be traced to the beginning of the industrial age: Is there something unhealthful -- even sinister -- about vast concentrations of corporate power?

The general viewpoint of the Reagan administration was stated last month by Attorney General William French Smith, in remarks that resonted throughout the law firms that counsel major companies on mergers and antitrust problems.

"We must recongize that begness in business does not necessarily mean badness and that success should not be automatically suspect," Smith told the annual meeting of the District of Columbia Bar.

The administration will continue to look closely at mergers that involve competitors in the same industry and will prosecute price-fixing and other kinds of illegal business conduct, Smith said. But it won't be automatically suspicious of mergers of companies that aren't in direct competition with each other, he indicated.

The other side in the debate harbors fundamental suspicion of industrial concentration. Sens. Edward M. Kennedy (D-Mass.) and Howard H. Metzenbaum (D-Ohio), say the competition for control of Conoco "seems to be just the beginning of a long series of huge combinations," and they have urged the Senate Judiciary Committee to hold hearings on the developments.

Since the pasage of the Sherman Antitrust Act in 1890, antitrust advocates have opposed merger trends, warning that they reduce the number of competitors and thus make it easier for big companies to dominate markets and dictate to consumers. Their goal, as stated by Judge Learned Hand of the U.S. Court of Appeals in a major ruling against the Aluminum Co. of America in 1945, is to preserve "for its own sake and in spite of possible costs, an organization of industry in small units which can effectively compete with each other."

The recent remarks of Smith and the Justice Department's antitrust chief William Baxter raise questions about how tough the Reagan aministration will be on mergers.

Baxter has said there will be no retreat on horizonal mergers involving competitors in the same industry. "If they think we're generally soft on mergers, that they can slip significant horizontal aspects past us, they're going to be in for a big surprise," he told the Wall Street Journal. t

The Mobil Corp. bid to acquire Conoco will privide a crucial test of the administration's attitude toward horizontal mergers.

Baxter and Smith appeared to take a more lenient view toward other kinds of mergers. One is vertical combinations of two companies in different segments of the same industry, such as the proposed merger of Conoco with E.I. duPont de Nemours & Co. Inc. A DuPont-Conoco union Which has yet to receive the Justice Department's approval) would give DuPont a secure supply of oil, gas and coal as raw materials for its production of plastics, synthetic fibers and other DuPont products.

The second category includes conglomerate mergers, the combination of unrelated companies, ofter the acquisition of a weaker company by a stronger one. The attempt by the Seagram Co. of Canada to purchase a 51 percent share of Conoco, now being resisted by Conoco and DuPont, would be a merger of this type.

The Reagan administration, backed by an increasingly influential group of conservative economists and antitrust lawyers, called the Chicago School because its roots are at the University of Chicago, argue that efficiency is the indispensible ingredient in a healthy economy. The efficient company wins out in the end and the less efficient competitor dies in a contest ultimately determined by the consumers, who wind up with the goods they want at the lower prices the more efficient firm can offer.

Most companies that merge do so not because they are trying to muscle smaller competitors, this theory holds, but because they are trying to become more efficient. Those that succeed will prosper; those that don't will fail, and "the disapperance of some should not be taken as indisputable proof that something is amiss in an industry," Smith said.

The disappearance of the Youngstown Sheet and Tube Co. in Youngstown, Ohio, in the late 1970s, after its acquisition by the conglomerate Lykes Corp., is cited by liberal antitrust advocates as a classic example of a general evil in such mergers.

For most of this century, Youngstown Sheet and Tube was a bulwark of the steel industry centered in Ohio's Mahoning Valley near Pittsubrgh. In 1969, it was the eighth-ranked steel producer in the country, with more than $1 billion in assets. Much of that amount, however, represented aging facilities badly in need of modernization.

The firm was acquired that year by Lykes, a New Orleans-based holding company one-third its size, whose principal activity was the steamship business. Lykes' motives for acquiring Youngstown have been hotly debated ever since.

A subcommittee of the House Small Business Committee concluded in a study last year that the chief attraction of Youngstown was its cash flow -- nearly $100 million a year at the time of the acquisition. The report quoted Lykes president F. A. Nemac as saying then, "I will hesitate to use Youngstown's $100 million annual cash flow to move into other fields if our views on the future of steel should change." Lykes was borrowing heavily in that period to acquire Youngstown -- the report cited $191 million in debentures and $175 million in other debt. It used part of Youngstown's cash to pay interest on that debt, according to the study.

At the same time, however, Youngstown absorbed two other blows: demands by the Environmental Protection Agency for installation of expensive pollution-control equipment at the plant, and an influx of lower-priced foreign steel that captured one-third of the Great Lakes steel market in the mid-1970s.

George Beettle, a steel industry consultant from Philadelphia who investigated the Youngstown story, says, When it came time to reinvest in the steel operations, they just could'nt do it."

Another consultant who was involved in Youngstown's struggles, William Sullivan, said at the time, "Lykes had no experience" in steel making. "I guess they were unprepared for the cyclical nature of the steel industry" and were caught with inadequate financial strength to meet the foreign competition.

Nemac, then Lykes' president, now a private consultant, denied that Lykes drained Youngstown and said that in fact, Lykes had to put money into Youngstown. "It's an excuse. There was a great downflow of cash into the steel company," he said. Asked about his reported comments on tapping Youngstown's cash flow, he replied, "If I said that then, it was a very preliminary observation. In fact, it wasn't done."

The old steel facilities in Youngstown were at the end of the receiving line for capital improvements, the record shows. Lykes invested first to improve steel production at the Youngstown company's newer plant at Indian Harbor near Chicago, which had the advantage of a Lake Michigan location with easy access to iron ore shipped via the Great Lakes.

The company's facilities in Youngstown grew weaker and weaker competitively, and were shut down beginning in 1977, putting thousands of steelworkers out of their jobs and leaving both sides in the merger debate with fresh ammunition.

What happened to Youngstown was a "redeployment of assets into more productive areas," said Nemac, or the inevitable result of market efficiency, conservatives would say.

What happened to Youngstown was the result of a failure of antitrust laws, the Small Business subcommittee concluded. Had it not been for the merger, Youngstown Sheet and Tube would have concentrated its funds in Youngstown and tried to renovate its facilities to meet the competition, the subcommittee contends.

If it is hard to determine, looking backward, whether a merger helped or hurt competition, it is much harder for the Justice Department or the Federal Trade Commission to make that judgement when a proposed merger is under review, says Robert Pitofsky, a former FTC commissioner who resigned this year.

"As a result, antitrust enforcement along economic lines already incorporates large doses of hunch, faith and intuition," Pitofsky said in an article published in 1979.

It is hard to apply any consistent formula in judging the competitive aspects of mergers, Pitofsky acknowleges, but the other extreme -- an exclusive reliance on economic efficiency to decide antitrust and merger policy -- presents some serious political risks, he said. Left unrestrained by government policy, mergers and combinations of the largest companies could conceivably reach a point where public confidence in the economic system is seriously undermined, and a backlash of anti-democratic government reaction results, he said.

The social and political benefits of limiting mergers among giant firms are imprecise and messy to deal with but are still crucial, he claims. As a practical matter, mergers take place for reasons other than economic efficiency, he said in an interview.

"I am persuaded there are often no significant efficiencies," he said. "Sometimes it is simply empire-building."