For decades, this quiet beachfront community of 80,000, wedged between Los Angeles and the Pacific Ocean, was known mainly for its rolling surf, its large population of elderly retirees and its traditional politics.

But less than a year after the forces of the Campaign for Economic Democracy seized upon the volatile rent control issue to win control of the city council here, the political climate has shifted dramatically to the left.

The new liberal majority, which calls itself Santa Monicans for Renters Rights (SMRR), is led by Mayor Ruth Yannatta Goldway, a 36-year-old former consumer activist, but its driving force is the CED, the statewide group led by activist Tom Hayden.

Goldway and her supporters believe they have a mandate to make dramatic changes, and have used their expanding political muscle to curb development, strengthen rent control and prod the private sector into providing a host of municipal services.

They believe they are at the forefront of a political movement that will blossom as the full effects of President Reagan's economic policies and his New Federalism program become more apparent to other states and localities.

But opponents see them simply as astute politicians who took an emotional pocketbook issue and turned it into a blueprint for electoral dominance.

"Santa Monica used to be run by a small clique of downtown businessmen and bankers who ran it as though it was their private, political domain," complains Goldway.

"They were used to meeting in smoke-filled rooms to choose who the city council members will be. The tenants couldn't even speak. They didn't even get proper recognition.

"The former establishment ran roughshod over their rights and ran a little plantation here. Well, now that's been severely limited and there are some people unhappy about that."

SMRR took over what had been a conservative town with a hard-nosed campaign that zeroed in on a key economic issue for a large majority of the city's 80,000 residents of whom 80 percent are renters.

In the late 1970s, with an acquiescent city council looking on, developers disrupted established neighborhoods and displaced large numbers of elderly and lower middle income tenants with office buildings and high-priced ocean condominiums. As rents on remaining housing skyrocketed and long-time residents were forced out, the political pendulum began to swing.

"People were defending their community," says Dennis Zane, a city council member and early CED organizer. "The city was transforming before our very eyes and the authorities, especially for planning, were sitting on their thumbs. The rulemakers before us had no right to give away our community."

In 1979, when landlords failed to stabilize rent after property taxes were cut under California's Proposition 13 tax-cutting initiative, SMRR won two council seats and pushed through a tough rent control initiative. Then the group took over the local rent control board.

Last April, it won a convincing majority on the city council, cementing political control until 1985.

Bob Gabriel, Chamber of Commerce president and a former council member, concedes errors were made but not with bad intentions.

"The condo conversions were an error, quite frankly. The political leadership didn't realize they should have tied it to the vacancy factors. It wasn't a question of pushing people out. It was an error on the part of the city council. These were not gouging-type people. They thought they were helping the middle class.

"It's easy for people to throw stones and say we screwed the city up. From a socialistic standpoint maybe we did . . . somehow, somebody thinks that everybody who wants to should be living on the Pacific Ocean. And that's not necessarily so.

"I know people who voted for these people who don't believe in CED, who believe in the free enterprise system," Gabriel says. "They voted to protect their rents. It made a $100 or $200 monthly difference to them . Now the question is reeducating these people to some of the other things that are going on."

What's "going on" is that Santa Monica now has perhaps the most stringent rent control law in the nation.

Developers cannot build here unless they provide community services like day care and low-income housing. A set of new zoning proposals would curb development and create more mixed neighborhoods. The municipality's commitment to social services and the arts is expanding.

Gabriel and others claim the activists are building a political power base for the CED. A statewide group with 25 chapters, CED pushes a power-to-the-people philosophy centering on development of alternative energy sources, reproductive rights, toxic waste disposal regulations and a strong anti-nuclear stance.

Local CED chapters have won small electoral victories over the last four years in Bakersfield, Berkeley, Chino and other California towns. But Santa Monica has emerged as the organization's crown jewel.

"We're trying to develop democratic ways that people of the community and the state can participate directly in the economic decisions that affect them," says Zane. "It's an indigenous, grass-roots movement of people who live in the community and are trying to address political needs as they see them."

In Santa Monica those needs, as CED sees them, are to stabilize rents, curb the developers and preserve the existing income mix in the community. Detractors label the program socialistic and elitist. Goldway bristles at the accusation.

"The kind of socialism they like is socialism for the rich," she says, claiming her predecessors used $15 million in city funds to subsidize a new shopping center. "They don't mind that kind of subsidy or high-rise condominiums for the wealthy. What they don't like is using public funds to benefit the average people."

The main way the city is generating those public funds in an age of economic cutbacks is by demanding that developers conform to its definition of community interest.

Office builders locating here, for example, are asked to provide an assortment of social services for the community like day-care centers, public parks and even rental housing. Some local businessmen claim that approach is little more than municipal extortion that erodes the city's fiscal base.

But Goldway, Zane and the others counter it is a responsible approach that merely eliminates fast-buck developers who they don't want in the city anyway. "We're not anti-big-business," says Zane. "We support those who don't run roughshod over the community. We don't think government should be the handmaiden of the business community. There are some business interests who haven't realized their ambitions, but those ambitions were in conflict with the interests of the city."

Since the activists began implementing their philosophy, political tempers in Santa Monica have risen. Landlords took the offensive, launching a spate of legal challenges to rent control. Many stopped making repairs in protest or pulled their units from the market.

More than 2,500 homeowners formed their own group after fears grew that a proposed massive zoning revision would bring increased urbanization to quiet single-family neighborhoods.

An opposing, well-financed political group--Citizens Congress--sprang up as a foil to SMRR and unsuccessfully campaigned during the last election on an anti-crime platform.

The opposition has concentrated its attack on Goldway, who committed an embarrassing political blunder when she and husband Derek Shearer, a noted New Left urban planner and appointee to the zoning commission, accepted free airline passage to London in possible violation of state law.

Now the state attorney general is investigating and there have been calls for the mayor's resignation.

But a Superior Court judge has upheld key sections of the controversial rental ordinance, ruling that landlords have not proved they are being denied a "fair and equitable" return.

Goldway says worthwhile developers and businesses are conforming to the city's demand for social responsibility because they want to take advantage of Santa Monica's location, ocean access and clean air.

The CED believes it has discovered a formula that will work in other communities. "With Reagan pulling out support for all the cities . . . it really is necessary for citizens to control development and put the profits back into improving city life," Goldway argues.