WHEN THE Smithsonian Festival of American Folklife first began in 1967, the nostalgic Southeastern crafts were often billed as being by "the last face-jug potter in Georgia" or "the only mule-ear chairmaker in North Carolina," or some such.

But the great collection of traditional crafts to be displayed June 24-28 and July 1-5 during the 1981 Festival on the Mall are often made by the sons and grandsons of the craftsmen once believed to be the last of their kind.

"Most of the craftspeople we found in the '60s," said Ralph Rinzler, director of the festival since its beginning and a folklorist since 1956, "were old folks. We were looking at endangered traditions. The young people weren't interested in taking up their grandfather's work. Their neighbors didn't think much of the craftsman down the road a piece.

"I remember Edgar Tolsen, a wood carver, was dismissed by his neighbors as a whittler. Now some of his wood carvings are in the Whitney Museum, and several others. He's the local hero now. And his son Donnie has taken up the family calling. Today, folk crafts are appreciated not just by collectors and museums but also by the neighbors of the craftsmen and women.

"Crafts have become a respectable occupation. The sons and grandsons in the 1960s would have left Georgia or Tennessee to grow their hair long, play rock and drive fast cars in Detroit. Nowadays, they see apprenticing to their elders to learn the family craft as a good way to live. Some of the work we've chosen was made by the seventh or eighth generation of a single family who brought their skill with them from Europe."

Fifteen years has seen an immense growth both in the number of craftsmen and respect for the crafts. The Smithsonian's Folklife Festival can claim a great deal of credit for sparking the revival.

The folk crafts have important differences from some of the art crafts that you'll see in high-toned places such as the Museum of American Crafts in New York, the Renwick Gallery here and that sell for high prices at the Fendrick Gallery in Georgetown. The folkcraft worker believes:

An object doesn't have to be useless to be beautiful.

It isn't necessary for an artwork to cost $1,000.

Just because the craftsperson made two of something doesn't make either less desirable.

But that does not mean that the folkcraft worker does not often produce art.

Rinzler remembers that Japanese potter Hamada once told him that he had started as a painter but decided to make objects that would bring beauty to the everyday lives of people.

The major difference between craftsmen and artists is that a craftsman normally works from someone else's design, an artist's original or a traditional pattern. Artists invent their forms, but don't necessarily have the skill to make their designs. The artistic event of our time is the rise of the highest form: the artist/craftsman, the person who both designs and makes the object, the happy unity of head, hand and heart.

Unfortunately, along the way, too many university-trained artists/craftsworkers have listened to high-flown philosophy from art historians and critics who don't know how to chop wood. They give the artist/craftsman the wrong-headed view that if the object can hold water, or even -- perish the thought -- flowers, it can't be considered Art.

Folkcraft workers don't have any hangup about being called potters or basketmakers or weavers instead of ceramic or fiber sculptors, even though many of them make original designs, thus themselves traveling over the bridge between craft and art.

The face-jug makers, for instance, make each face different, working within the original forms that began way back in England and Africa. Rinzler said Lanier Meaders in Cleveland, Ga., one of the real old-timers, has been making face jugs that look more and more like self-portraits.

The everyday pieces stick closely to forms that have evolved over hundreds of years of trial and error. The spout is placed just so because people have found this way it doesn't drip. Casseroles have two handles and a finial on top so you can get a better grip on it.

But even within these prescribed limits, the craftsman has a great deal od room to exercise his artistic ideas. The thinness of a lip, the shape of the handle, the colors and textures -- all are at the choice of the craftsman. Every object of wood or clay or straw carries with it forever the fingerprints of the craftsperson.

A sensual satisfaction comes from mixing your pudding in a handmade white bowl or pouring your milk from a frogskin glazed pitcher or sweeping up the ashes with a straw broom like the one your great-granny had.

At the festival, some 200 pieces will be exhibited and auctioned off on July 4 and 5. A large crafts sales tent will sell less expensive crafts.

The most expensive piece in the exhibition/auction is probably a double-woven basket of honeysuckle vine, dyed with bloodroot and walnut hulls, from the Qualla Crafts Cooperative in Cherokee, N.C.; it's expected to bring more than $500. The other baskets include eel traps from Lee Willy Nabors of Okolona, Miss., and Floyd Harmon of Ocean City, Md.; a Choctaw basket from Linda Farve of Philadelphia, Miss.; and Chitimacha baskets from Ada Thomas in Charenton, La.

Lanier Meaders, now 64, and one of the stars of the first crafts show on the Mall, has outdone himself to make a two-gallon size face jug, two eight-gallon churns (not made since the '30s) and two three-gallon buttermilk pitchers. Meaders also has sent up a very old cream riser, a pot straight out of the 17th century.

Burlon Craig of Vale, N.C., who learned his craft from a neighbor when he was growing up, has also made a big face jug along with a jar that has a face. At some auctions, face jugs bring $300 to $500. Some will be priced at the festival for $10 to $120, depending on size. Often unknowing or unscrupulous dealers will pass them off as antiques. Meaders now signs his pieces and Jugtown Pottery, N.C. dates its pottery. Many of these pieces are never seen outside their home state, because the potters don't like to sell to dealers.

The Cornelison family potters arrived from Holland with Peter Stuyvesant. They moved to Kentucky about 1809, setting down at their present site in Bybee in 1845. Now the fifth and sixth generations are still at work.Their 14-ounce coffee mugs are a real bargain at $3, not to mention the punch bowl for $30, hand-turned by Walter Lee Cornelison. A wonderful churn of salt glaze with cobalt decoration was turned by David Farrell and decorated by Mary Livingston from Seagrove. Some of the most beautiful pottery comes from Jugtown, especially the salt-glazed punchbowl with a dozen noggins priced at $192.

The sandstone owls were carved by John Wiltshire, a butcher in Coffey County, Tenn., who likes to use his knives after hours as well. Edgar Tolson's Adam and Eve figures are now in the Whitney, but his son Donny is represented by a David and Goliath figure from the North Middletown, Ky., studio.

Cornshucks come as mats from Dicie Malone of Knox County, Tenn.

The musical instruments are marvelous. Napolean Strickland of Como, Miss., made the cane fife. Leonard and Clifford Glenn of Sugar Grove, N.C., who made "banjers" for Frank Proffit, famous for his recording of "Tom Dooley" in the '60s, have made a cherry banjo and a walnut dulcimer for the exhibition-auction.

Willard Watson of Wildcat Road, Deep Gap, N.C., has sent up folk toys carved of wood: the balancing sawyer, which defies gravity; the covered wagon; the walking mule; the pecking chicken; the fellow driving pigs; and a dancing doll and a doll bed. His wood sleigh, horse and driver is too good to allow children to play with it.

Down in Know County, Tenn., according to my mother, a middle-aged man used to say, when he was ready to leave: "Let's put the chairs in the wagon and all go home." The sort of chair he was talking about will be at the festival. The most common varieties have posts above the back called thumbbacks or mule ears. They were made by Dallas Bump or Royal, Ark. A wagon seat, two chairs joined together, was made by Jack McCutcheon of Mount Judea, Ark. Charlie Christian of Mount Judea made the ladder-back rocker.

The Whig Rose coverlet in Delft blue of cotton and wool was made by the Goodwin Family Weaving Guild in Blowing Rock, N.C. Rinzler said the first of the family came from Bolston, England. They were silkweavers. The immigrant had defected from the army, shipped on a boat coming to the colonies, was shipwrecked, rescued from the watery deep and brought to Philadelphia. The family still has his sea chest.

Some of the quilts come from Ora Watson, of Deep Gap, N.C. Some Amish quilts are also in the exhibit.

Metalwork is undergoing a revival. The large strap hinges and fireplace implements by Phipps Bourne of Elk Creek, Va., are especially handsome. Bourne recently cut off several fingers while using a saw, but he's still able to make everything he always did, he told Rinzler. A chandelier in the exhibit comes from Erwin Thieberger of Montgomery County. The andirons were shaped from a wagon tire rim by Pete Howell of Yancey County, N.C.

The festival this year centers around the Washington Monument grounds; the objects themselves are a continuing monument to American arts and crafts, the hands, hearts and heads of the people.

Festival hours are 11 a.m. to 5:30 p.m. with concerts from 7:30 to 10 p.m. More than 200 performers and craftsworkers from 30 states will perform and demonstrate their talents.