He had seen the newspaper photograph of Nancy Reagan at the White House state dinner last Tuesday night wearing "an oldie," as he called it, a silk satin dress with a draped empire back that he made for her two seasons ago. "In fact," said designer James Galanos, "Mrs. Reagan liked it so much we did two -- one red and one green."

When the two met for lunch the next day they discussed not past favorites, however, but the inaugural ball gown she has asked him to design. About all he would say about it is that it's unlikely to be white and probably won't bare one shoulder, like the gown she wore four years back.

"She likes very simple clothes that aren't overpowering," said Galanos. At lunch she wore one of his wool dresses with big shoulders, "which you know I emphasize for her, because she's so narrow. Many women have the tendency of wanting little tiny narrow shoulders, and they can't understand that when you give them a little bit of buildup it always makes the hips look slimmer. Of course, we don't exaggerate for Mrs. Reagan because she can't carry overexaggerated shoulders, because she is really, really petite . . . Size 4."

Last Friday, in a rare presentation of the designer's entire fall collection, the small luncheon crowd at Neiman-Marcus -- with many tables unfilled -- could see why Galanos is considered the top American designer. And why he is the American designer all the European couturiers want to meet.

In an intimate setting totally appropriate to the clothes, the audience applauded the elegant, precisely tailored suits, this year often topped with short flyaway jackets; the marvelous long, easy-fitting coats; the pleated daytime dresses; the long jersey evening dresses, newly tight-wrapped over the hips; and the one-of-a-kind beaded dresses, including a black crushed-velvet and satin gown with batwing sleeves bought by Mrs. Reagan. The audience also loved the remarkable range of furs, from casual, reversible blousons to a dramatic white ermine and fox opera coat. The show took more than an hour and a half, and for the real Galanos aficionados, it wasn't enough.

Furs are not an entirely new project for Galanos -- he had made them until 10 years ago. "I wasn't very high on furs at the time, and I did it against my better judgment, but it was very successful," he said before the show. When the firm with which he was associated closed down because of union problems, he was happy to stop designing. For years the top furriers tried, and failed, to lure him back into the business.

Then the prestige furrier Peter Dion sent a lawyer to approach him. "I said no immediately," Galanos said, then added with a smile, "he was a very fast-talking . . . big-talking lawyer . . . and I had to listen to him." Dion himself flew out to California the next day, and in 10 minutes a bargain was struck. "I was just absolutely charmed by the man," Galanos said. "I liked what he had to say. What he wanted to do with me was on the highest level, and he offered me the best skins, the best furs. They treated me like royalty . . .

"He gave me anybody I wanted for the fur campaign ads. So I had Richard Avedon last season. This season I'm using Skrebneski. What more can you ask for? . . . And he's limited distribution just to the Neiman-Marcus stores and Bergdorf Goodman, so we can control everything."

That the partnership has worked well shows in both the quality of the furs and the design. "In furs I'm doing as with clothes, trying to be classic with matching my touch to furs. I'm not trying to do outrageous, trendy furs, but a good cut and good lines."

The furs young people wear, by designers such as Fendi, "are fantastic, but they're another school from me," Galanos said. His customers build a wardrobe of furs, as they do a wardrobe of his clothes.

There is always a fur of the moment, and today it is the thick pelt, such as beaver or muskrat, he says. Silver fox was the fur of the 1930s, and then it couldn't be given away. In the '40s it was Persian lamb. Galanos has revived both very successfully.

At the moment he is partial to fur jackets, but he also shows sable and mink coats and glamorous white fox coats with white mink. "They're very extravagant, but we've had a few bites," he said, smiling. Russian lynx bellies are the most expensive, since they are more rare and fragile. (Last year they sold two, at $175,000 each.) Mink is for the traditionalist, outselling other furs because it is versatile and holds up well.

"Frankly, in relation to clothes today, furs are cheap. I mean, you can buy a fur coat, a good mink for $10,000, $15,000, and most good designer evening gowns start from $5,000 to $15,000, even $20,000. You get longevity with a fur. All you have to do is maintain it well, take it to the 'Frigidaire' during the summer and get it glazed."

Galanos relies on Dion not to buy any endangered furs. "When I'm presented with skins, it's like a piece of cloth," he said. "I don't think it's cruel today, because they breed animals for this purpose. Whether it's moral or not moral, I don't know. We're just involved with the fashion at this point. I'll let the others worry about the other stuff."

He uses fur on the sleeves of short suits in his own collection. "You try to inject some idea of glamor, a certain luxuriousness. Clothes have become very luxurious all of a sudden. There's great demand for dressing up."

Although he is best known for his evening clothes, Galanos sells more of his daytime dresses, suits and coats. His customers usually buy four or five outfits at a time, some buying up to 12 and 15 pieces, including a couple of cocktail dresses and one spectacular evening gown or special dress that can be worn for a long time.

And they are worn a long time. "Listen, people are always wearing old things," he said. "It's just a question of how much chic you have. Some can't get away with it, others can. Some people can get away with murder."

Mrs. Reagan recently wore a 20-year-old Galanos with a strapless velvet embroidered bodice and full chiffon skirt. She had sent it back to the designer and asked whether it should be updated. "The only thing I did," he said, "I added a satin ribbon on the shoulder with a little bow. That was it. Twenty years old and there wasn't a rip in the skirt. The chiffon was as new as ever. The embroidery was intact, the velvet. You know, she keeps her clothes immaculate. It's nice to see."

The designer's penchant for the color black was apparent in the show of his collection. But he has not shied away from using bright shades, as in a buttery yellow satin gown with a short beaded jacket. "I also like strange colors, the colors that a lot of women fight," he said. It outrages Galanos when some women bring him their color charts -- "Don't show me those things," he tells them. "There are some typical things -- redheads think they look great in greens and blues, and that's okay. Blonds are better in certain colors. But I always say that black works with everybody . . . but that's debatable."

He adds thoughtfully, "I find most people end up with the colors they deserve. You know, you get muddy colors, and sometimes the ladies are pretty muddy in their skin texture and I have to laugh."

Galanos' clothes are the most expensive in America. Blouses start at $2,000. But "my clothes are not expensive, actually," he said, "because you are dealing with the finest fabrics in the world. They go anywhere up to $200 a yard. They are the same fabrics that the European couturiers use. And, in truth, they are predominantly handmade, all hand finished inside. You can turn it inside out -- the inside is even nicer than the outside."

It's true. Women appreciate his workmanship, and seamstresses in alterations departments often say they love working on Galanos clothes because they are so beautifully put together. "It's flattering," he said. "It's nice, because I make a real thing about it."

He is as precise about presenting his clothes as he is about making them. After checking out Washington's top models before the show at Neiman-Marcus, he refused to hire even one. "I'm very particular about presenting clothes in a truly professional way, and if I can't find professional models wherever I travel, I bring them to that city. Otherwise I wouldn't present the show," said Galanos, who ended up using New York models exclusively, each with 31-inch hips. "To me the presentation is everything. I want the audience to see the clothes in the best possible light."

The clothes are made in his California workrooms by 75 people, many of whom were with Galanos when he started 30 years ago. "Our workrooms are like the League of Nations," he says, adding that it is difficult to find quality seamstresses. He recently added to his staff several Middle Eastern women who had learned fine needlework and embroidery making religious items. He teaches them how to put clothes together the American way -- how to make buttonholes by hand, for example. "The buttonholes are beautiful, so fine. Even I love to look at them," he said. "I've always told my people not to cut corners. If anything, take extra time, even if it costs us money."

Sometimes a blouse costs more than a dress. Most blouses require four to five yards of fabric, the pattern carefully matched so that a design starting on the body, for example, is completed perfectly in the sleeve. In doing this you may lose a yard of fabric, Galanos explained.

"Sometimes the simplest thing is the most difficult thing. It's just like a piece of art or a beautiful vase. The one that has less de'cor on it is more demanding, because with de'cor you can hide things."

Suits start at $3,500, occasionally $2,500 or $2,900 without a blouse, and coats are $3,000. This season he has done several double-face wool coats, one of the most difficult tailoring techniques, made more so by the cut and details he has added. "It gives it a little more character," he said. "And that's fun, a challenge."

Mrs. Reagan owns several of his coats, but, so far, not one of his furs. She has furs, but rarely wears them these days. "But I told her I think she should. There's no reason why not. Listen, if the man on the street has a fur, why shouldn't the woman in the White House?"

Galanos has started to wear furs himself. He got a fur sweater for his birthday, and wears a tailored black mink with black tie. "I must say, I feel a little self-conscious wearing it during the day, but with black tie I think it looks very elegant." He took a fur as his only coat on a recent trip to Europe. "But Europe was very strange -- I felt uncomfortable. With all the great wealth there, women and men aren't parading around looking extravagant, whereas in the United States we still do.

"I had an uneasy feeling like maybe they might think I'm being pretentious, but I'm not like that. Of course I like the fur, but you have to get over those attitudes. Either you wear it with flair and distinction and forget about all the problems of the world, or you don't do anything."