When Frank Hodsoll decided he was interested in being chairman of the National Endowment for the Arts, he told his boss, James Baker, White House chief of staff.

"Are you serious?" asked Baker. "Why would you want to do that?"

He told Bill Pye, a friend and a sculptor, whose large stainless steel work, Narcissus, graced Hodsoll's front yard for almost a year. Pye's reaction was "to almost fall out of his chair," Hodsoll recalls.

"It was a surprise to all my friends," says Hodsoll, chuckling, sitting on a couch in his office. On the wall behind him is a mammoth swath of blue abstract painting by Hans Hofmann (on loan from the Hirshhorn).

At a luncheon Wednesday, President Reagan announced that he would nominate Hodsoll, 43, deputy assistant to the president and deputy to White House Chief of Staff James Baker, to that post, which is now held by Livingston Biddle.

Barring unforeseen congressional criticism, Hodsoll will be confirmed and spend the next four years overseeing a federal organization that had a budget of $159 million last fiscal year. Under the guidance of staff members who divide themselves into artistic disciplines, the NEA awards grants to well-known as well as young-and-struggling ballet companies, theater companies, symphonies, visual artists, dancers, composers and writers, to name some.

"Encouraging creativity is like being at the cutting edge of human development," says Hodsoll. "Maybe I'm crazy, but I think that would be an exciting thing to do. Not being a member of the creative sector myself, I think it would be interesting to help deelop a climate within which creative people will find it easier to do their thing."

Becoming a candidate for the job was not difficult for Hodsoll, given his interest and access. After White House advisers decided in favor of it, Hodsoll was summoned to a meeting with President Reagan the morning of Aug. 17 at the Century Plaza Hotel in Los Angeles. "I see you've heard of my latest interest in life," Hodsoll said to the president. Reagan smiled and nodded and talked about the arts. Said Hodsoll, "We ended the conversation with a general agreement that I wouldn't be an all-bad guy to do that."

And that's how it came to be that Francis S. M. Hodsoll -- lawyer, career foreign service officer, longtime special assistant to a variety of people in two previous administrations, "gnome," by his own definition -- is the presidential nominee for NEA chairman.

The biggest drawback to his appointment is his lack of arts administration experience, something Baker pointed out to him right away, Hodsoll says. His expertise, rather, lies in federal administration: "I have a lot of experience writing policy papers."

"I've done a lot of different things," he says. "Environment to energy to foreign affairs to nuclear nonproliferation to energy conservation to a variety of things. I'm a jack of all trades and a master of none, I suppose, if you were to describe me." Hefty and Hearty

If you were to describe him, you would say he's a big beefy guy, 6-foot-4, boyish face, who used to play squash at Yale, plays a little tennis now and laments that he should play more of something regularly.

On his left pinky is a signet ring with his British father's family crest.* "It says, 'Aut Bibat Aut Abeat,'" he reads, and translates, "'Either drink with us or get out.'" With this, he lets out a hearty laugh.

He grew up in Califoria. His father, who came to control the largest British trading company in the Philippines, had fought in the Boer War and at Gallipoli during World War I.

"When i was a boy," he says, "my father used to get into campaign talk and the whole dinner table would start revolving. Somebody's plate would become this division and somebody else's plate would become the regiment of such and such. He was very enthusiastic about his wartime experiences."

At Yale, he did some acting, sang in glee club had the lead in a musical -- "Wish You Were Here" -- performed by a semi-professional company in New Haven. "Clearly I wasn't cut out to be a singing star," he says ruefully.

Fresh out of college he got a Yale internship in government, came to Washington to work for New York Republican Rep. Stuyvesant Wainwright and promptly got the political bug.

After a six-month stint in the Navy, he went to law school. ("I was told if you wanted to go anywhere in government you needed to get a law degree.") He spent a year at Stanford two in Cambridge, another back at Stanford. During the Cambridge years, he met his wife, Mimi, who was studying at the Sorbonne and traveling around North Africa. He took her out for a real American breakfast in Paris. "That seemed to impress her a lot," he says. "We went on from there."

After law school, he practiced with Sullivan and Cromwell on Wall Street, doing securities work. He decided after a year there "that what I saw partners doing was pretty much what I was doing except with more zeros at the end. And i didn't want to do that."

He opted for the Foreign Service. That was 1966. He worked in the administrative office of the American embassy in Belgium. In 1972, he went to the EPA, followed by Commerce (1974), where he worked on energy conservation and became executive assistant to two under secretaries in a row, the second one being Jim Baker (1975). That was a connection that followed Hodsoll through to the summer of 1980 when Baker asked him to get involved in the Reagan campaign.

Hodsoll says he's always been interested in art, even if he didn't pursue it professionally. On his walls hang the works of Hoffman, Theodoros Stamos and Sam Francis. Baker, Hodsoll says, "has Remingtons and pictures of the Old West, and every time he comes in here, he goes 'uuuughh.'"

In his present job, he arrives at 7:45 a.m. for 13-hour work days that include doing the senior staff agendas and follow-ups and a "a number of special projects," including immigration and refugees, the Clean Air Act and the Ottawa Summit. As a member of the transition team dealing with the Iranian hostage release before Reagan took office, "I spent the night of Jan. 19th in the Carter White House," he says. "It's probably the thing I remember the most of anything I've done here." The Disco Diplomat

His lack of arts administration elicits mixed reactions.

Former NEA chair Nancy Hanks, a product of philanthropic and governmental background, says an arts background isn't necessary. "As long as the listens to professional [NEA grant review and policy] panels and professional staffs, that's fine," says Hanks, a member of the task force on the arts and the humanities, who calls Hodsoll "first rate."

The arts community reacts diplomatically and optimistically.

He doesn't know much [about the arts], but he knows what he doesn't know," says one arts lobbyist."He'll learn."

Peter Zeisler, director of the Theater Communications Group (which provides informational services to nonprofit professional theaters), was one of four heads of ars service groups who met with Hodsoll for two hours on Sept. 30. "I was terribly impressed with his openness," says Zeisler. "He asked good, hard questions . . . My sense is that, from his background, his strengths will lie in administration and the Hill. He's a professional government bureaucrat, and I don't mean that in a pejorative sense."

Says one Hill arts observer, "The pro fr his taking the job is that he has a direct line to the White House, but that's also a con because this White House has been perceived as not being terribly fair to arts groups."

Rep. Sidney Yates (D-Ill.) is less worried about Hodsoll learning the ropes than he is about his stance on the Reagan cuts in arts and humanities budgets. "What is he going to do about Stockman's strictures?" asked Yates, referring to the Reagan proposal to cut the arts endowment budgets by 50 percent -- from Carter's proposed $175 million to $88 million.

Told that Hodsoll, an economic conservative, supports the president's cuts, Yates replied, "Well, that will be a problem."

Hodsoll may be economically conservative, but he's hardly socially conservative, as he readily admits.

He took a year's leave of absence in 1977 to be the contractor on his home, which was designed by architect Don Hawkins. It is a modern, airy vision of blond wood floors, high, angled ceilings and curtainless expanses of glass looking out onto woods. In the true spirit of California, it also has a hot tub and a disco.

"You have to see the disco!" he exclaims one night during a small cocktail party he is holding for the task force staff at his home.He bounds downstairs, where, off toward one end of the room, is an arc of space with white curved walls and a hard dark floor. He switches on red and blue recessed ceiling lights, and a reel-to-reel tape deck that blasts out Billy Joel's "It's Still Rock 'n' Roll to Me."

"Are you going to demonstrate for us?" jokes a staff member's husband. Hodsoll easily obligues. The Homework

For his new job, Hodsoll is boning up with a stack of reading material: the NEA's budget, a detailed description of its programs, Andre Malraux's "Voices of Silence" ("one of my favorite books in school"), Tom Wolfe's criticism.

At the beginning, says Hodsoll, "I think there was interest [in the White House] in involving someone with quite a lot of stature -- like Charlton Heston -- in a very visible role, not necessarily as arts chairman." That, of course, happened when Heston was appointed one of the three cochairs of the Presidential Task Force on the Arts. Heston denied rumors that he was in line for the NEA chairmanship, saying that, for one thing, he didn't have enough time.

Hodsoll expects Heston to get involved in the Federal Council on the Arts, which the task force recommended be changed to include private citizens. "I don't know if he'll be chairman," said Hodsoll, "but I think he'll be heavily involved. He may have a special role to play."

Like his predecessors. Hodsoll will face the sticky situation of approving grants for projects that end up being lambasted -- by Congress as well as others -- as silly, embarrassing or a downright waste of money.

"The best thing about the endowment is its potential for stimulating creativity," says Hodsoll. "You can't try something new without doing an occasionally silly thing."

And, in classic understatement, when asked about his support of endowment budget cuts: "I suspect a lot of arts people are on the other side of the fence. But that shouldn't affect their artistic creativity or our ability to support that creativity."

Why, as an economic conservative, does he support any fe deral funding of the arts?

"Just as in research and development, there's a role for the federal government -- to do those things beyond the imagination of companies that have to show a near-term profit -- so there is a role for the federal government on the cutting edge of creativity."

What he'd like to see, he says, is more federal encouragement of private-sector giving to the arts, which is the credo of the Reagan administration. "I'm suggesting a greater degree of invovelement by endowment personnel -- including the chairman -- with successful fund-raisers to try and generate both enthusiasm and fund-raising. We're goig to do a lot more of that."

"We hope to set up a fairly organized network of people," he says. "People who've been successful in fund-raising. I would go out and speak. I would get [these fund-raisers] out to places where fund-raising hasn't been successful."

Of the repeated rumors that the administration plans to abolish the endowments eventually, he responds, "I wouldn't be taking this job if [its abolition] were in the cards."

And of his present job, he acknowledges: "It is a bit of a taste of power. I've very much enjoyed it here -- and I like to think of myself as having been helpful. But . . . what I really would like to do is have prov grams of my own to run. I've been in government for a long time, and I've had bits and pieces of programs -- I've been staff to various people -- but I've never had something that could be totally something I could do on my own."