ONE OF THE first alarms was sounded from within

the fortress itself. In the summer of 1980, two esteemed Harvard Business School professors, Robert Hayes and William Abernathy, wrote an article for the Harvard Business Review entitled "Managing Our Way to Economic Decline."

"What's wrong with the American economy?" the professors asked. Why, nothing less than American management, with its focus on short-term results, quarterly earnings, and the "bottom line," they answered.

One year later, as the country awaited a Reaganomic revival, Time magazine narrowed the blame for our economic woes even further. There on its cover was an eager young man with blond hair and blue eyes, a mortarboard on his head, and a diploma reading "MBA" in his hand. Was this the enemy? The Master of Business Administration?

The Time article, called "The Money Chase: Business School Solutions May Be Part of the U.S. Problem" was but one example of what had become--and remains--a widespread disenchantment with young business school- educated managers. They have been denounced as not only "too arrogant," "too aggressive," and "too expensive," but also as "lacking loyalty." Chief executive after chief executive has been quoted to bolster the case against them.

Harvard professor Hayes, who has written many articles on the subject and often lectures on it, thinks that the "MBA problem" stems from a fundamental mistake made by business schools, including his own: over-emphasis on the quantitative techniques of modern financial analysis. In other words, they've been teaching too much "management by the numbers." And the numbers, particularly in periods of high inflation keep favoring short-term investment over long-term commitment.

The trend, Hayes says, began 20 years ago, when the concept of "management as an art form" was replaced by "management as a science." The results, Hayes and other critics claim, are: less interest in the human issues which are at the heart of good management; a subtle bias against long-term investments because "the numbers" tend to be measured in short-term ways; and too much concern with the here-and-now value of a company to its stockholders, as opposed to a firm's long- term value to its employes, consumers, and neighbors, as well as its stockholders.

The anti-MBAs also point a finger at business education's focus on corporate strategy and conceptual management, instead of actual production experience. Hayes says he has never forgotten the time when he pressed the students in his production course on some difficult details in a case study, and they answered, "This isn't the job of the manager. We should hire someone else to do it for us."

At the Stanford Graduate School of Business, traditionally a stronghold of quantitative analysis, Associate Dean Charles Holloway says, "We take the criticism very seriously. We're always discussing the limitations of our quantitative models."

They're doing more than discussing at Stanford, which hasn't had a regular production course for its MBAs in a decade. Suddenly, there is one--a brand new required course designed for those who intend to go into the plant management area as well as for the traditional general managers-to-be. Harvard is also redesigning its production course, to meet the Japanese business challenge.

The trend is a national one. Even at the more traditional Darden School at the University of Virginia, associate Dean Sherwood Frey reports that the major new emphasis is on broadening the perspectives of its students and giving them a more international point of view.

But this doesn't mean that the debate over the MBA is over. On the contrary, the counter-attack has just begun.

Are the graduates of business school really the slaves of soulless numbers? Not according to David Bloom, admissions director at the Wharton School. "When I ask our grads how often they use the formulas they learn in finance class, they say, 'Never.' "

Harvard finance professor Jay Light goes one step further. He says that even if business schools do teach students to manage short-term, by the numbers, that is not the source of our economic difficulties.

"There's no evidence to suggest that America's problem comes from managing short-term," he says flatly. "If it were true, you'd expect trouble in the dynamic fast-growing industries with rapidly changing technology. We'd be milking them of their short-term profits (not investing for the future) and, consequently, we'd be failing in them. Meanwhile, we'd be doing well in old, slow-moving industries with less opportunity for short- term profits.

"In fact, it's just the opposite. We're strongest in high technology, and it's the smokestack industries we're failing in. Steel companies have been investing long-term for years and it hasn't worked."

So don't blame the business schools, say the finance professors. Blame the uncertainty of our economy. MBAs' attitudes are merely a reflection of the business environment.

"It's very simple," explains William Fruhan, Light's colleague. "We're undergoing a transformation from a manufacturing economy to a service economy, and the dislocations are painful. The basic tools of financial analysis, therefore, are as long-term as they can be. They project as far forward as anyone can actually see."

Which, as most economists and businesspeople agree, isn't all that far these days.

But if short-term thinking by MBAs isn't the culprit, is their arrogance and managerial self-interest?

Jay Light admits that Japanese management is more driven by collective self-interest, and that may be more efficient in a shrinking, more competitive world economy. But, he says, "our country is built on individual self-interest."

The problem, according to most business school professors, lies with the society at large and American business as a whole, not the business schools.

Asks Harvard professor Bruce Scott: "Can the Harvard Business School really have as much impact on the graduate in two years as the corporate environment has in the next 20--which is how long it takes before a student gets substantial power?"

"I wish," says Sherwood Frey of Virginia's Darden School, "that business schools were as effective as we're given credit for."

The greatest irony in this debate seems to be the continuing demand for MBAs, despite their terrible reputation. Even in these dismal economic times, the recent graduates of the Wharton School, for instance, earn 14 percent more than their counterparts of a year ago. They also make average starting salaries of around $35,000.

"That's the justification for the MBA mill," says Wharton's Bloom. "The market wants them, even in a recession. The employers are satisfied with the product, and we respond to what industry wants."

The ratio of applications to admissions has soared. Wharton now gets 4,000 applications. It accepts only 700 students. At Harvard, it's approximately 8,000 applicants to 800 entering students. At Stanford's business school, 5,000 prople vie for 300 slots.

These would-be students know that while American companies may publicly condemn MBAs, they'll continue to compete for them.

And, until a sustained recovery delivers us from our ecomomic soul-searching, the controversy surrounding their alma maters and American management will continue as well.

In his office at Harvard, amid bookshelves lined with the quantitative finance books of his early career, Robert Hayes sounds a warning:

"If the Japanese companies will accept a lower profit margin than American companies will," he says, "and will reinvest far more of their earnings, how will we ever catch up unless we change our perspective?"

But where does Hayes invest his own money?

"In a money market fund," he quickly admits. The shortest-term investment of all. If even the standard bearer of the "long-term" movement invests short-term, the business schools have their work cut out for them.

A short distance from Hayes' office, Professor Jay Light stands on the steps of Harvard's stately Baker Library, surveying a group of students. He is pondering the negative image of the MBA, particularly the Harvard variety.

"The faculty members here often dislike the graduating MBAs' self-interest and arrogance," he says. "These are just not the kind of people many of them think they'd like to have dinner with. And so, sometimes, the faculty feels the need to put in a pitch to them for interests other than those of Caesar."

But there's one small hitch in the professors' strategy, says Light, as he gestures amiably at the students: "These are Caesar's kids."