FOR THE FIRST -- and possibly the last -- word on the state of Chicago belles-lettres, I defer to Nelson Algren, the erstwhile voice of the city's literary disestablishment and its vagrant novelist-laureate, who once wrote: "There has hardly been an American writer of stature who has not come up through The Chicago Palatinate . . . God help the poor joker who comes up through Old Seesaw Chicago today." It took him longer than most, but Algren, like so many Chicago writers before him, finally caught a one-way flight from O'Hare; he ended up in Hackensack, N.J., where he is, according to one recent communique, working on two books about the boxer, Rubin "Hurricane" Carter -- one fiction, the other nonfiction. "That way," he mischievously assured me, "I can have books on both best-seller lists at the same time."

Now that Algren is our chief writer out of residence, the territory clearly belongs to Saul Bellow. The two authors once enjoyed a rivalry only slightly less hostile than that of Bugs Moran and Al Capone during the Prohibition era, and over the years each novelist has attracted a small army of zealots. There are those who feel that Bellow is the preeminent writer, not only in Chicago but in the universe, while many others insist that Algren and the noble savages who populate his work are more in the Chicago spirit of Carl Sandburg, Theodore Dreiser, Ben Hecht and the late James T. Farrell than are the urbane inhabitants of Bellow's planets.

Bellow rarely appears at public events, just as rarely makes public utterances. Nonetheless, in a recent interview he did talk about his work-in-progress, a memoir of Chicago during better days. "I thought it was time, after so many years in Chicago," he told Neal, "to put down my feelings about it . . . Partly my own recollections of the '20s, '30s and part of the '40s; (the book) will contain also some comparisons between the old Chicago and the new."

Bellow also agreed to appear at the city's first Literary Arts Ball last spring to present a Sandburg Award to his friend and University of Chicago colleague, Richard Stern, who was being honored for his latest novel, Natural Shocks. Immediately after Stern accepted his award, Bellow ceremoniously departed, and so managed to affront the nonfiction winner, Eugene Kennedy, who was about to receive his award for a biography of Mayor Daley, Himself.

Even at that, there were many other guests who would have gladly joined Bellow at the exit. The affair was "produced" by Essee Kupcinet, wife of Irv Kupcinet, the city's senior gossip columnist, beneath a dome in the gloriously tiled Cultural Center (formerly the public library), and it turned out to be a brassy melange of show business and culture: two emcees, disco dancing, musical comedy numbers, and, almost incidentally, a half-dozen authors reading from their work. It was billed as a "celebration of Chicago authors." Yet Mrs. Kup felt it necessary to import some out-of-town talent for the readings -- including Truman Capote, Rod McKuen and Sidney Sheldon. Aside from Bellow, the author who managed to best catch the spirit of the evening was Studs Terkel, who slept through much of it, most conspicuously the speech by Bellow, whom he reportedly does not admire.

Among Chicago writers, Terkel, author of such oral histories as Hard Times and Working, may be the one with the highest profile. He has a weekday radio show and can frequently be seen on Michigan Avenue, with his perennial red-checked shirt, Hush Puppies and unlit cigar, engaged in his favorite preoccupation, which is, as the title of his most recent book had it, Talking to Myself. Terkel reports that he is immersed in his new oral history, American Dreams, Lost and Found, but beyond that he will -- uncharacteristically -- say little.

In recent years, James T. Farrell was sometimes referred to in Chicago newspapers as the late author of the classic Studs Lonigan trilogy -- a lapse that Farrell himself usually corrected with mordant humor in a letter to the offending paper. The obituary that appeared August 22 was not, alas, one Farrell could correct: the 75-year-old writer had died in his New York apartment of heart failure. Ever since the Lonigan books were published, Farrell had been pigeonholed as a Chicago writer, but he had moved to New York in the early '30s and only infrequently returned to the city where both he and the doomed Studs had come of age. He was buried in suburban Evanston. Farrell's death brought a number of written valedictories, the most eloquent of which came from his old adversary, Algren, who said, "He is one of the very few writers who changed readers' lives . . . Studs Lonigan affected multitudes."

The roll call of Chicago writers includes a number who have published books in recent years and are working on new ones -- William Brashler, Leon Forrest, Rosylyn Lund, James Park Sloan and Carol White, among them -- but perhaps the best known is Harry Mark Petrakis, two of whose robust, affecting depictions of Greek-American life, Pericles on 31st Street and A Dream of Kings were nominated for National Book Awards. Petrakis, whose flowing mustache, burly physique and histrionic posture make him seem like a classic Greek patriarch, has finished one novel -- Nick the Greek, to be published later this month -- and is already sketching out another, a bawdy, impressionistic saga of Chicago's Greek community, which has as its centerpiece a "tremendously obese" woman named, aptly, Rotunda.

Yet another prominent Chicago writer soon to be heard from in the bookstores is Cyrus Colter, a retired Northwestern University professor whose writing career didn't begin until he was almost 60. This fall Colter is publishing, with the local Swallow Press, his third novel, Night Studies, which in more than 1,000 pages attempts to say all he knows about the "mystery of blackness."

Publishing has never been a heavy industry in Chicago, but unlike the stockyards and the breweries, some vital traces of it yet remain: Regnery, once a monument to conservative political philosophies, has become Contemporary Books under its new management and now puts a lot of emphasis on pop sports, medical and financial books; Rand McNally this season has doubled its list of trade books -- to 21 -- in an effort to shake off its image as a purveyor of maps and atlases; and Academy Press Chicago is an embryonic house that publishes such prestigious authors as George Sand and the Welsh novelist Kate Roberts. And note should be taken of the energetic "little" magazines -- TriQuarterly, Chicago Review, Poetry, StoryQuarterly, and December (which does not necessarily appear in December, but whenever its maverick editor, Curt Johnson, can get together the funds and resources).

I have saved for last at most crucial of all literary matters, the social life of writers, but only because there is not a great deal to be said about it. That grand old stereotype of the Chicago writer as a consummate drinker is, alas, as extinct as the poetry of Maxwell Bodenheim. The so-called writers' bars -- principally, Riccard's and O'Rourke's -- are mostly hangouts for off-and on-duty newspaper people.

Aside from the Literary Arts Ball, this season's big social ticket was the party Richard Himmel, an interior decorator who moonlights as a spy novelist, gave for 300 close friends to celebrate the publication of his latest adventure, Lions at Night. The event was held under a tent on Michigan Avenue and featured such imaginative touches as a live lion and cougar, ushers dressed as Cuban revolutionaries, steak tartare, rye-flavored ice-cream cones and a sidewalk booth where copies of Himmel's book were sold. Afterward, the author told a columnist, "They didn't do this in Moscow for War and Peace."