When Dudley Dillard came to the University of Maryland 40 years ago, he says he made some foolish statements about the school's economics department--which then had only one other professor--some day becoming one of the top 10 in the country.

What raises eyebrows today is that, as far as public universities are concerned, Dillard, who was the department's chairman from 1951 to 1975, was right.

In a recent survey sponsored by the Conference Board of Associated Research Councils, Maryland's economics department was tied for sixth place in the public institutions category, and it was tied for 18th as far as all economics programs are concerned. In Washington--the economists' center of the universe--Maryland is rated No. 1 above Johns Hopkins and the University of Virginia. Surprised? People in the profession are not.

"Maryland probably has 15 or 16 full professors that have national reputations in their fields," compared to about two or three at Georgetown University's economics department, said Douglas Brown, chairman of Georgetown's department.

"Maryland is much bigger, their salaries are a lot higher than ours," said Nancy Barrett, chairman of American University's economics department. "They're able to attract big names. They're more theoretical. They've always had more resources. To establish yourself as a big name, you have to have big stars," Barrett said.

Maryland has the largest star constellation of all area schools, with Charles L. Schultze, Mancur L. Olson, Barbara Bergmann, Clopper Almon, Henry J. Aaron, Paul Wonnacott, Wallace E. Oates, Martin McGuire, Martin Bailey and Mahlon R. Straszheim. Many of the stars grew up with the university at a time when respected economists wouldn't consider leaving their ivy-covered halls for the suburban lawns of College Park.

Many have combined academic reputations with high-visibility government posts, and several others have had stints at think-tanks, particularly the Brookings Institution. For example, Schultze was chairman of the Council of Economic advisers under President Carter and also director of the U.S. Bureau of the Budget, now the Office of Management and Budget, from 1965 to 1968. Lyle Gramley was on the faculty until he left to become a member of the board of governors of the Federal Reserve system.

Some, like Mancur Olson, have written books that have shaken up the economics field in the university's area of expertise, which is public policy and public finance. Another Maryland professor, Dennis C. Mueller, wrote the book "Public Choice," which was considered by many economists at the time of its publication four years ago to be the premier text on the relatively new discipline of public choice, an area of study that focuses on the effects of government policy.

"I thought it would be nice to be one of the top 10 departments," Dillard said of his thoughts 40 years ago. "That might have been a foolish thought at that time. There was not a lot of evidence that it could be done in College Park . . . but it was distinctly a possibility."

As recently as 1970, the Conference Board survey rated Maryland below the top 20 schools, behind programs such as University of Illinois--now 29th--and Iowa State University--now No. 36. But Dillard said one reason for Maryland's previously low ratings was an image problem. While it is not considered one of the premier economics departments on the scale of Massachusetts Institute of Technology, Harvard or Stanford, its reputation is improving.

In the Conference Board survey, Johns Hopkins was rated 22nd; the University of Virginia, 23rd; Virginia Polytechnic Institute, 28th; George Washington University, 58th; American University, 72nd, and Georgetown University, 84th.

"Maryland has improved a lot in recent years," said Roger Sherman, chairman of Virginia's economics department, which was rated four schools below Maryland. "They've added some good people."

What separates Maryland from other local universities? Money. With money, the university has been able to lure top economists, hire support staff and allow their professors to teach half as many clases as professors at, say, Georgetown, and devote their time to research.

"The way most graduate schools are ranked is according to the articles published in prestigious journals," Georgetown's Brown said. "Maryland was No. 1" in the Washington area. "They have more top people doing that sort of thing than than anyone else." At Georgetown, "there's historically been a heavy teaching load, output is only eight to 10 articles a year."

Economics departments are rated on the strengths of their faculties, the quality and quantity of published articles in journals, the accomplishments of their graduates, the size of their programs, their libraries and research support for faculty members.

One of Maryland's strongest points in the Conference Board study was for improvement during the last five years. The study also showed that other economists were becoming more familiar with the work being done at Maryland. The scholarly quality of its faculty was also highly rated as well as its effectiveness in educating research scholars.

The school was not that highly rated as far as the number and influence of articles published by its faculty or characteristics of its PhD graduates. For example, Maryland in 1978-1979 published 46 articles whose influence was judged slightly above average. Top-ranked MIT, on the other hand, whose faculty size is comparable to Maryland's, published 161 articles that were considered more influential.

In the study, Maryland got low marks for achievements of its graduates. For example, between 1975 and 1979 only 14 percent of its PhD graduates had received some national fellowship grant during their education, compared with 63 percent for students at MIT. Maryland PhD candidates took an average of 8.3 years from the time of their enrollment in graduate school to complete their degrees, compared with 5.6 years for MIT students.

During that time, 77 percent of Maryland's economics PhD graduates had made definite commitments to employment, while 91 percent at MIT had done so. Only 20 percent of those completing their doctorates had made definite commitments for employment at PhD-granting universities, while 53 percent at MIT accepted such jobs.

However, Oates said another indication of recognition for Maryland was that "talking to people in the job market, the Maryland degree was being received quite warmly." Yet, when asked where Maryland graduates had been placed in teaching jobs, Oates and Donald O'Connell named schools ranked well below Maryland in the survey.

Getting any recognition was a long struggle, said Dillard. "When we first started hiring we couldn't get the people we wanted," Dillard recalled. "You keep trying, then things tended to improve. People began to recognize things we're doing at Maryland. We got people who had been leading professors at Harvard" and other high-ranking schools.

"These people grow with you," Dillard said. "It took an awfully long time for us to recruit full professors."

Some of the people who grew with the university were Schultze, a PhD student there who later began teaching; Olson and Almon, who were hired as associate professors from Harvard, and Wonnacott, who was hired at the associate-professor level.

Maryland considers its curriculum to be geared more toward applied economics rather than theoretical economics. For example, Aaron's research is on retirement policy and the impact of budget limits on health care resources. Almon's expertise is in improving forecasting models of the U.S. economy, bringing together econometric analysis of consumption, investment, production, employment, prices and incomes. Bergmann's research concerns labor market problems of women and blacks.

A controversial book among economists written by Olson last year, "The Rise and Decline of Nations," explains how special interest groups reduce efficiency and income in society and disrupt political life. According to Olson, the longer a society exists without disruption, the more powerful interest groups become, which eventually slows down economic expansion. Economies in which these groups have been destroyed enjoy the greatest gains in growth, Olson said.

For example, in Germany and Japan, war and revolution destroyed narrow interest groups and prepared those countries for rapid postwar economic expansion, Olson said.

"One of the reasons I went to Maryland was the concentration of very good people and the study of government policy," said Oates, an economics professor at Princeton University for 14 years who, with noted economist William Baumol, wrote "The Theory of Environmental Policy" in 1975. He has also been an advisor to the governor of Maryland.

Maryland associate professor Maureen Cropper specializes in environmental economics, or "determining what it's worth to people to reduce air pollution." She said one of the benefits of teaching at Maryland is its proximity to the Environmental Protection Agency.

"If you go outside of Washington, the things that give you high marks are how theoretical you are," American University's Barrett said. "People are attracted to Washington because of policy. At MIT, nobody's interested in whether interest rates are going up and down . . . They're interested in the model of how to predict interest rates several years from now. We are interested in what's going on in the real world. If you want to do high theory, you go to MIT."

Although many academics downplay the accuracy of ratings, some said such rankings do have some merit. For example, publications in journals is important, "but if you just have large publication in journals, you could have a lousy department," said Virginia's Sherman. "It's important to have influential people. You need to have people who influence the profession."

Georgetown now says it will try to spruce up its department, emphasizing national recruiting of students, and concentrating on PhD programs in the fall of 1984. "We're going to hire two, if not three professors with high salaries who have high recognition in their field, to send Georgetown up in its rankings," department chairman Brown said.

"In five more years . . . you'll see we're up there, but not where Maryland is," Brown continued. "Georgetown will be in the top 35 to 40 in the next three to five years."