Nothing more clearly demonstrates the utter exhaustion of economic thought among our national opinion and policy-makers than the fact that most of them now agree. What they agree upon is that to control inflation, we need a recession.

They may quibble about whether they mean a "growth recession" or the good-old-fashioned variety. But The New York Times says we need one, Business Week says so, the National Association of Manufacturers says so, last week The Washington Post said so. And, of course, the unnamed administration economist says so, although Alfred Kahn maintains that we will only need to "lower our standard of living" for several years.

Yet few outside this circle seriously subscribe any more to a mystical trade-off between inflation and unemployment.Keynesian theory is in disarray. "Economists no longer believe that some bissful state can be achieved by demand management," says Otto Exkstein of Harvard, himself a Keynesian."Unfortunately, that hasn't penetrated to the Brookings Institution or the White House-they're both 10 years behind academic thought in fiscal policy." What could the serious academic community do but dismiss the theory after the spectacular failure of textbook demand management in 1969-1970 and 1974-1975? Keynesians are leaving the academy, but seem to wind up in Washington.

Here they can feel at home. Treasury Secretary Michael Blumenthal has explained that "inflation is caused by a number of factors that act together and interact in strange and mysterious ways."

We have inflation, apparently, because too many workers are working too much, business is doing entirely too much business, producers are producing too much and consumers are consuming too much. Certain commodity prices seem to be rising all by themselves.

Given the premise, the administration's answer to inflation is perfectly logical: Everybody should do less of whatever it is they're doing. Slow down the economy, and with luck, inflation will eventually go away.

Now, the notion that we can fight inflation by employing fewer workers to produce fewer goods and lowering their real wages tends to puzzle the factory workers in my Buffalo area district, who by this definition have been fighting inflation since 1969. They may not have studied Samuelson, but it seems to them that as goods get scarcer, prices go up, not down. They find austerity is the problem, not the solution.

And what about minority unemployment? Why is no one in Washington any longer appalled that 12 percent of black adults and more than 40 percent of black teen-agers don't have jobs? Aside from being a criminal waster of human life, chronic unemployment is one of the biggest contributors to the demand for "inflationary" federal spending. Each 1-percent rise in unemployment costs the budget $20 billion in lost revenues and higher spending.

Yet black audiences are being admonished for not voting-presumably for not voting to support an antiinflation scheme that explicitly proposes to put upwards of 1 million more workers out of jobs by next year.

Margaret Bush Wilson of the NAACP told us two years ago that "inflation is not caused by too many workers working," and Margaret Bush Wilson was right. Inflation is not caused by workers working, business doing business, producers producing or consumers consuming. Inflation is a decline in the value of currency. Period. Goods aren't geting spontaneously more expensive any more than they would suddenly grow if the government decreed that there are 15 inches in a foot. The average price level rises exactly to the degree that federal monetary policy devalues the dollar.

The administration's frustration with wage and price controls arises because people aren't fooled, as called for under both Keynesian and monetarist theory, into accepting each devalued dollar at full value.

Yes, hold the applause for monetarism. If, as the monetarists tell us, we are to blame inflation entirely on the Federal Reserve Board, how do we explain why inflation spurted from about 8 percent in the last quarter of 1978 to more than 13 percent in the first quarter of 1979, when Federal Reserve policy was actually tightening?

The answer is that inflation means not only too much money created, but too few goods produced. Deliberate efforts to slow the economy's output almost to zero (the administration's successful discouragement of housing starts, for example) have increased inflation to its highest level since the last recession.

Federal fiscal and monetary policies have been backwards for more than a decade. Monetary policy is supposed to prevent inflation, and fiscal policy is supposed to promote the economic growth that pays for federal spending.

Instead, unnecessary overregulation and excessively high tax rates are deliberately slowing down the economy and increasing the demand for federal spending. What is the Federal Reserve supposed to do? If money is loose, inflation increases and simply pushes everyone into still higher tax brackets, further decreasing productivity. If money tightens, it hastens the recession, yet with lower output, inflation remains unaffected.

No wonder they warn us that this policy may take a while.

Is this the best we can do? Is it true, as a Washington Post editorial asserted last week, that we have to go along with this routine yet again because "nobody really has any other strategy to offer"?

As a matter of fact, there is an alternative. It's called production. The Joint Economic Report of 1979 finds "an emerging consensus in the [Joint Economic] Committee and in the country" that in the fight against inflation, "the major challenges today and for the foreseeable future are on the supply side of the economy."

"The greater the burden placed on production, the less production there will be," the report explains. "Reducing these tax and regulatory burdens may encourage the supply of labor, capital and output. This may weaken inflation and lessen the prospect that steps taken to manage demand will produce a slowdown."

The administration and the Congress are doing some of the right things to restrain demand generated by federal policies, but all of the wrong things on the supply side. The biggest mistake is trying to balance the budget through massive tax increases, as inflation pushes everyone into higher tax brackets without relief for two more years.

It doesn't work. Exactly such attempts to balance the budget by raising tax rates were directly responsible for the last two recessions and their increasingly unbalanced budgets. All we learned was that putting millions of workers out of jobs is no way to stop inflation and no way to balance the budget.

To avoid recession and reduce inflation at the same time, measures must be enacted immediately to encourage saving, investment, employment and production, while holding down federal spending and tightening money creation. I happen to believe that the most direct way to get individuals to work, save and invest more is to increase the after-tax reward on the next dollar they earn, save or invest-that is, to lower their marginal income tax rates.

But there are many other steps we can also take to encourage supply: Index income and capital-gains rates, adjust inventory appreciation and capital depreciation for inflation, remove controls on wages and prices, stop taxing American energy production to subsidize imports of foreign energy, and reduce the disincentives for hiring minority and unemployed workers.

The excuse just won't wash any more that we don't dare change anything because the economic theory that resulted in two recessions says we can't. If when history repeats itself, the first time it's tragedy and the second time it's farce-what does that make of another recession in 1979-1980? CAPTION: Illustration, 'THE DIFFERENCE, SON, IS THAT WHEN A LOT OF PEOPLE LOSE THEIR JOBS, IT'S A RECESSION. IF I LOSE MY JOB, IT'S A DEPRESSION.' By Auth for The Philadelphia Inquirer