Washington — Martin S. Feldstein's resignation as President Reagan's top economist was like much of his 21 months in office: engulfed in an administration policy squabble.
The latest debate is over the Federal Reserve Board's management of the money supply. After several banks boosted their prime, or benchmark, lending rate to 12.5 percent from 12 percent Tuesday, Deputy White House Press Secretary Larry Speakes lashed out at the Fed for not providing enough money to accommodate economic growth and prevent rising rates.
Mr. Feldstein, a Harvard- and Oxford University-trained economist, picked the same day to tell reporters that the Fed's decision in late March to tighten credit conditions somewhat was ''not inappropriate,'' given the economy's rapid expansion in the first quarter of 1984. And in his resignation letter to Mr. Reagan, Feldstein said monetary policy ''is following a course that should prevent a return to increasing inflation.''
Sources close to Feldstein, as well as top administration officials, say the Harvard economics professor's coming departure on July 10 was long planned and was not a protest. He must return to the university by September or lose tenure. In addition to returning to teaching, Feldstein will also resume his position as president of the National Bureau of Economic Research in Cambridge, Mass.
''He is going back as he always planned'' and had not been urged to leave early, Mr. Speakes said.
The current disagreement is relatively mild compared with the anger Feldstein provoked within the administration by his repeated warnings about the danger of large budget deficits. He argued that it would be necessary to cut defense spending, raise taxes, and adopt other measures to stanch the flow of red ink.
During those battles, Speakes repeatedly mispronounced Feldstein's name at a White House briefing and remarked that the economist talked ''too often and too much.'' And when the Economic Report of the President came out in Janaury laced with warnings about the effects of high deficits, Treasury Secretary Donald T. Regan told the Senate Budget Committee they could ''throw away'' the document, whose preparation Feldstein supervised.
Feldstein told reporters yesterday that he now has ''basically no disagreement'' with other policymakers in the administration over the deficit. In March, the President agreed to a $144 billion deficit-reduction plan that included $48.3 billion in new taxes.
Observers give Feldstein high marks for forceful exposition of ideas but somewhat lower grades for influencing policy while at the Council of Economic Advisers.
Feldstein ''is an exceedingly good economist and clear expositor of views,'' says Herbert Stein, who was President Nixon's chief economic adviser. ''And the President has come to a more concerned position on the deficit and Martin had something to do with that. You just cannot measure a council chairman by the conformity of policy to what he advocates.''
Charles L. Schultze, President Carter's chief economic adviser, claims that Feldstein ''was as effective as it is possible to be with a president who is both wrongheaded and stubborn.''
On the issue of deficits ''he didn't have much impact, (but) he had some. But don't put that down to lack of ability on his part,'' Mr. Schultze says. Instead , the economist continues, that lack of impact is due to the President's feeling that ''he knows all there is to know about taxes and the deficit.''
In the debate on monetary policy, economists with a wide variety of political hues agree with Feldstein, although they sometimes quarrel with the Fed on other issues.
''The Fed is not withdrawing support from the expansion. What it is trying to do is moderate the pace of expansion so it need not become inflationary,'' says Jeffrey Leeds, vice-president of Chemical Bank.
''If there is anything to fault them on it is letting (money) growth swing too much,'' says Alan Murray, vice-president of Citibank.
Rising interest rates are politically troublesome for any incumbent administration. The recent boost in the prime is expected, after a slight delay, to trigger higher rates on home and car purchases.
''That will shave some growth off of both sectors,'' which are politically sensitive, notes Ronald Utt, a US Chamber of Commerce economist.
In a speech this week, Feldstein warned that there are signs in the financial markets pointing to ''a significant rise in (short-term) interest rates over the next 18 months.''
The view that interest rates will continue to rise is widely held in the financial community. By year's end the prime will be between 13 and 14 percent, says Bernard Markstein III of Chase Econometrics.
He says he expects rates to rise because private borrowing continues to grow rapidly, the Fed has tightened up on credit, the outlook for major deficit reduction remains poor, and there is a modest increase in the inflation rate.