Even before he was sworn in as director of the Office of Management and Budget, David Stockman was warned by his supply-side friends that, if he wasn't careful, he would soon be facing deficits of more than $100 billion a year. A number of us had observed that Stockman, as early as December 1980, had begun his drift away from the economic-growth agenda that had been central to supply-siders and the Reagan presidential campaign. In trying to balance the budget directly, he would only invite recession, shrink the tax base, explode entitlement payments and balloon the deficit.

The supply-side prescriptions involve dramatic fiscal and monetary reforms that would head off an "economic Dunkirk," which is the phrase Stockman himself used in a memo that advanced those reforms for the president-elect's consideration. Fiscal policy would be directed at restoring production incentives through lower tax rates. Monetary policy would aim at fixing the value of money instead of its quantity, having the Fed target the price of gold instead of some "M" quantity of money.

The monetary reform was critical. Lewis Lehrman, who was the supply-side candidate for Treasury secretary and had helped formulate the Stockman "Dunkirk" memo, then asserted that such a reform would result in a 6 percent prime rate in 18 months. Lehrman further argued that only in this way could the budget be balanced in the future. Given a $1 trillion national debt, the difference in financing at 5 percent and 15 percent is roughly $100 billion a year. To supply-siders, at least, it seemed inconceivable then and now that the budget could ever be balanced without correct monetary policy.

This bit of recent history is worth recalling in light of the Reagan administration's commitment to a constitutional amendment requiring a balanced budget. Dave Stockman was opposed to such an amendment when he was a supply-sider because he was aware of the impact of monetary policy on the economy and, thus, the government's revenues and outlays. But since casting his lot with the Old Time Religionists in the Republican Party and inviting the recession that has produced $100 billion deficits, Stockman has endorsed the constitutional amendment. In fact, he was key to selling White House chief of staff Jim Baker on the idea, which now has President Reagan looking foolish.

Having failed the president on economics, Stockman could only devise this political ploy to make it appear that it is Congress that lacks the discipline to balance the budget. But this Congress has given the president virtually everything he has asked of it. In his press conference last week, Reagan complained that Congress had not given him the tax cuts he originally promised, "the full supply-side program." But it was Stockman who talked him into postponing the first year of the tax cut in order to squeeze more revenues out of the higher rates. Nor is there anything on the record to support the president's claim that Congress has denied him meaningful spending cuts.

The Democrats are not making much of a stink about the constitutional amendment because they are smart enough to know that it is horrible politics to identify with a mania for balanced budgets during a recession, and that Reagan is simply carving himself a place in history alongside Herbert Hoover. They also know, because Democratic economists are generally smarter than Republican economists, that the amendment is basically a silly idea that could not withstand the scrutiny of the amendment process. Why not help them vote it out of Congress and have the Republicans spend the next decade breaking their picks in the state legislatures? The budget is a monetary as well as a fiscal document, which introduces so many variables that the very notion of requiring balance becomes ludicrous.

When Federal Reserve chairman Paul Volcker testified July 20 before the Senate Banking Committee, Sen. Alan Cranston of California drew him into a discussion about the balanced budget amendment after Volcker asserted that the deficits were purely a fiscal problem ("We can't cure the federal budget through monetary policy," said Volcker).

"Would you see any problem," asked Cranston, "in requiring the president to state the monetary policy which is assumed to underpin the balanced budget statement just so you have some idea of what to expect and upon what the balanced budget was based in terms of monetary policy?"

Said Volcker: "I'm skeptical about enshrining that kind of thought in law. You have got a problem, a kind of threshold problem, of how you measure monetary policy. Now we struggle with that all the time."

Volcker, who refused to say whether he was for or against the balanced budget amendment, was certain nevertheless that spending must be cut and/or taxes raised in order to reduce the deficit and bring down interest rates that will invite economic recovery. But he also told the committee that recovery is on the way because "we have a large government deficit that is pumping out purchasing power."

Such statements merely add to the sense of intellectual bankruptcy among our policymakers that could not be remedied by the proposed constitutional amendment. At last November's meeting of the Fed's open-market committee, the minutes revealed the authentic "voo-doo economics": "Committee members in general believed that additional weakness in economic activity could well be accompanied by further declines in interest rates, which would be constructive in supporting economic activity."

The public seems to be telling the pollsters that it favors a balanced budget, which no doubt has helped nudge the president down this path. But the pollsters might as well ask the people if they prefer bull markets over bear markets, booms over busts, expansions over depressions, and have the sentiment enshrined in the Constitution. There is always some combination of tax rates, spending programs, regulatory policies and Federal Reserve policies that will produce a balanced budget over time in an environment of economic growth. But that policy mix can't be prepackaged. It has to be constantly rediscovered through the political process, because the economy is forever changing.

Nor is it necessary that the budget ever be balanced. As a corporation or a nation grows more productive, its debt can grow as long as its proportion does not outpace production. And a nation has to be able to run deficits to get through bad times the same way we expect families to borrow when the breadwinner is out of work. Those who have resources to lend will do so as long as they see the family or nation having the potential and prospect of getting back to work.

In this sense, the deficits we are now running are politically and economically proper, the net result of the Stockman-Baker-Volcker strategy that created them. The Stockman-Baker- Volcker idea of reducing them through spending cuts and tax increases would only drive the economy deeper into recession, as would a constitutional amendment that would require a Hooveresque response of this kind. The deficits will not disappear until we get economic growth. Economic growth will come with a supply-side monetary reform that fixes the value of money instead of its quantity, and not a moment sooner, no matter what the Constitution says.