GRANT RICHARDS, the British book publisher who hesitated over James Joyce's Dubliners for eight years before sending it to the printer and then sold 499 copies, one short of the number after which Joyce would receive a royalty, took a dark view of his profession. Publishing, he said, is a "brave business, but bitter."

Richards was in fact typical of a good many publishers, English and American, in the early years of this century: chronically broke, editorially timid and determinedly small-scale. In the 1920s, however, publishing on both sides of the Atlantic was rejuvenated by a new breed of bookmen suddenly awake to the commercial possibilities of publicity and a quality list. In Britain, two of the new men were Jonathan Cape and Allen Lane. Cape founded a publishing house that acquired a coveted reputation in the interway years for publishing the best books by the best authors in inexpensive editions of exceptionally beautiful typography. Lane arguably did more for the book trade than anyone since Gutenberg: As the founder of Penguin Books, he created the modern paperback book.

Cape's achievement seems the more remarkable since he came from humble beginnings and had little formal education. Born in 1879 into a large Quaker family, Herbert Jonathan Cape entered the book trade as a 16-year-old errand boy at Hatchards, the posh London bookseller. He next became a book salesman, first for Harper, the American firm, then Duckworth. When the latter's proprietor went off to fight in World War I, Cape took over as manager. But on his return, owner Gerald Duckworth (Virginia Woolf's halfbrother) refused a partnership on the grounds that Cape was not his social equal. The amiable Duckworth, however, helped Cape to get started in a number of ventures, including a cheap edition of the sensational novels of Elinor Glyn, the author who designated sex appeal as "it." In this way Cape save 2,000 pounds. Casting about for backers or partners, he met G. Wren Howard, public-school and Cambridge graduate, only son of an affluent father (Liberal MP and restorer of the Keats house in Hampstead) and keenly interested in the design and printing of books.

Despite their different backgrounds, Cape and Howard were clearly destined to be partners -- Howard, with the bibliophile's interest in the making of books, and Cape, with 20 years' experience in selling them. And so, on New Year's Day, 1921, Cape and Howard founded Jonathan Cape, Publisher, soon to be located in its famous premises at 30 Bedford Square in trendy Bloomsbury. By today's standards, their initial investment seems astonishingly small: 7,000 pounds in cash and 5,000 pounds in inventory -- about $60,000.

The firm quickly prospered. In two years its list contained 300 titles, each bearing the firm's handsome fruit-basket colophon. First-year sales totaled 10,954 pounds; 1925 sales were 50,000 pounds. After 1927 there was never any question about solvency. Lawrence of Arabia made Cape rich. Virtually the first book the firm published was a high-priced, limited edition of Charles M. Doughty's Travels in Arabia Deserta with an introduction by Lawrence. In 1927 Cape published his Revolt in the Desert, which sold 90,000 copies, and in 1935 came The Seven Pillars of Wisdom, which sold 100,000 copies. These were stupendous sales figures for the era (the American publisher Random House, for example, never exceeded the 100,000-copy mark until 1943 with Richard Tregaskis' Guadalcanal Diary).

The real secret of Cape's success, however, was the legendary figure of Edward Garnett, the firm's eminence grise as literary adviser. Twice a week for 16 years, rain or shine, Garnett appeared in Bedford Square with recommendations on which authors Cape should publish. What he was actually doing was serving up the cream of literary modernism. Garnett's father was the Keeper of Printed Books at the British Museum; his wife, Constance, was the translator of Dostoyevsky, Turgenev and Tolstoy. Garnett knew everybody and had read everything. As adviser to Unwin, he had nursed Conrad; as adviser to Duckworth, he had discovered D. H. Lawrence. For Cape he sniffed out Sean O'Faolain and H. E. Bates and recommended the publication of a galaxy of American writers unknown to the British public -- Ernest Hemingway, Sinclair Lewis, Eugene O'Neill and Sherwood Anderson. In return Garnett received a miserly 300 pounds a year and a case of wine at Christmas.

Few of Garnett's reader's reports survive. In those that do, "he was apt to pontificate . . . Much given to the editorial plural, he would remark that 'we cannot allow' some offering to contaminate the list; or in reference to some female author favoured by Jonathan, 'we cannot imagine why Cape persists with this third-rate author.'" Told a book would not sell, Garnett replied, "My young friend, always remember that there is still in this country a residuum of educated folk."

No love was lost between Jonathan Cape and Garnett; theirs was a business relationship. Cape himself rarely read a book and "seldom managed to inspire a successful book based on an idea of his own." What he did do was keep a keen eye on the balance sheet. A revealing anecdote tells how he once spent an entire day tracking down a missing penny. When a secretary murmured that it hardly seemed worth the effort, Cape exclaimed, "That, dear, is why I'm here and you're there!" Not an inspiring figure, perhaps, but his courtly manners and slow and deliberate bearing were appreciated by authors and fellow publishers, especially the American publishers Cape saw on his annual trips to New York. In his pipe and blue suit, he looked the very image of the eminent publisher, a presence he shared with his American contemporary Alfred Knopf.

After Garnett's death in 1937, there were other advisers, including poet William Plomer. But after World War II, the aging founders were surrounded by writers and literary tastes they did not understand. While still reflecting the glories of the past, the list fell of in eclat, though the firm had runaway successes with Ian Fleming's James Bond novels. Jonathan Cape died in 1960, Wren Howard in 1968. Under new leadership the firm regrouped, merging in 1969 with its close competitor in quality fiction, Chatto & Windus. Jonathan Cape never had the satisfaction of knowing that the merged firm owned Virginia and Leonard Woolf's Hogarth Press.

Michael S. Howard, the author of Jonathan Cape, Publisher, is the son of Wren Howard and is himself a former chairman of the firm. His gracefully written, affectionate account, noteworthy for its candor and fairness, was published in England in 1971. The book makes its appearance on these shores in the original edition (itself an outstanding tribute to the firm's tradition of superior design) as British publishers begin selling directly to the U.S. book market under their own imprint. Anyone interested in how books are made will want to own this portrait of a publishing house in what now seems the golden age of book publishing.

If Jonathan Cape could be termed a tortoise, Allen Lane was a hare. Born Allen Williams in Bristol in 1902, he was rescued from anonymity by what sounds like an incident in a historical romance. In 1918, fleeing the Zeppelin raids on London, a distant cousin unexpectedly appeared in Bristol. This was John Lane, owner of The Bodley Head, the publisher of Oscar Wilde, Aubrey Beardsley, Saki, Rupert Brooke and other pressed flowers of early 20th-century English letters. The childless John took a liking to the 16-year-old Allen, who obligingly changed his name to Lane-Williams, dropped out of school and followed the elder Lane back to London. Evidently a quick-study, Allen was soon shedding provincial manners, running up tailor's bills and attending smart literary cocktail parties. Starting as an office boy at The Bodley Head, he rose on his own merits to be the dictator of the sales department, quietly dropping the Williams of the hyphenated name along the way.

John Lane died in 1925, and Allen inherited a depleted interest in the financially wobbly Bodley Head. He installed his two younger brothers in key jobs and settled down at age 23 to enjoy modest riches. There followed a decade of heavy drinking and foreign travel. Then Lane had a big idea.

As J. E. Morpurgo tells the story in Allen Lane: King Penguin, Lane had spent a weekend in the country with Agatha Christie. Returning to London he was unable to find anything to read at the Exeter rail station. Eureka! The next morning he presented his brothers with a scheme for an entirely new series of books -- reprints of quality fiction and nonfiction, bound in attractively-designed papercovers, sold to the public at sixpence, or about the price of a pack of cigarettes, and agressively marketed everywhere people went. "He had no glimmer or thought that within four years he would be claiming for himself (and others accepting for him) that he planned and wrought a social revolution as significant as the invention of radio."

There had of course been paperback books before, in fact as early as 1501 in Venice. In modern times the French had been publishing them for years, and there was the immensely successful Tauchnitz series in German. The luckless Grant Richards had started a clothbound reprint series called World's Classics, which had to be taken over by Oxford University Press in 1905. It was Lane, however, who first demonstrated the popularity -- and profitability -- of paperback reprints in English (Robert de Graff with financial support from Simon and Schuster did not start Pocket Books Inc. in the United States until 1939; significantly, of other big American paperback houses, three were first headed by former Penguin executives -- Bantam Books, Signet-Mentor and New American Library).

While admitting Lane's status as pioneer, the larger claim of his admirers -- that Lane effected a cultural revolution -- seems excessive. What Lane actually had was incredibly good luck. Three years after he founded Penguin Books (in 1936 formally separated from The Bodley Head, which promptly went into bankruptcy), the world was at war. With paper in short supply, with millions of men and women under arms, the need for cheap, pocket-sized reading material was overwhelming. In 1939, the last pre-war year, the average Penguin title ran to an edition of 40,000 copies. By 1942, Lane was publishing 10 titles a month for the armed forces in editions of 75,000 copies each, a deal that alone was bringing in 200,000 pounds a year. In exchange for scarce paper, he was also supplying Penguins to the Canadian Army.

There can be no doubt, however, that Lane was an innovative genius, perhaps "the most original publisher of the century." Not content with the Penguin format, he experimented: After Penguins came Penguin Specials, Pelicans, King Pelicans and Puffins, an aviary of formats which encompassed fiction, poetry, nonfiction, current events, specially commissioned scholarly works, oversize illustrated books and children's books. He attracted exceptionally able editors, for instance, E. V. Rieu for classics (hs translation of Homer's The Odyssey is the bestselling Penguin -- 2.5 million copies), G. B. Harrison for Shakespeare and Nikolaus Pevsner for art and architectural history.

The price of success for Lane was increasing isolation. One brother was killed in the war, the other went into semi-exile in Australia. His brilliant staff soon became a breeding ground for rivalries, jealousies, wrangles and disputes. Penguin Books of Harmondsworth, Baltimore and Melbourne became famous within the trade for corporate intrigue and an owner who played favorites. A story demonstrates the ruthlessness and lack of pomposity which Lane's courtiers loved even when they were its victims: Departing from Australia after an inspection visit of the Penguin subsidiary, "Allen turned back, looking, as one of them said years later, 'as if he wanted the last word with old friends'. He pointed at the manager, 'You're out'. He stabbed his finger at the second-in-command, 'You're in', smiled, said 'I'm off'," and boarded his airplane.

Morpurgo, a former Penguin editor, is professor of American literature at the University of Leeds. His somewhat overwritten but nonetheless informative biography was published by Hutchinson last year and is released here in the original English edition. b

Morpurgo does a good deal of chortling over Lane's impish character. Less tolerant people probably found him boorish. In the end Lane had the last laugh. Sir Allen Lane, internationally acclaimed and weighed down with honors, died in 1970. Eight days after his death, the directors of Penguin Books announced the firm's sale for 15 million pounds to Pearson Longman, the book-publishing subsidiary of the holding company, S. Pearson & Co. In going through Lane's papers, his lieutenants discovered that their chief for 40 years had been consulting astrologists and graphologists on major business decisions.